Canada

Friday, July 10, 2020 - 14:14

MNI POLICY: BOC Balance Sheet Growth Stalls as Repos Roll Off


By Greg Quinn

OTTAWA (MNI) - The Bank of Canada's balance sheet was little changed at a record CAD529 billion this week as gains in federal bonds and bills were mostly offset by a reduced stock of corporate repos, an imbalance likely to continue with the government projecting a CAD343 billion deficit.

Federal bond holdings climbed to CAD173 billion from CAD167 billion, faster than the minimum CAD5 billion a week the BOC has pledged to acquire until the economic recovery is well underway. Canadian t-bill assets rose to CAD136 billion from CAD130 billion.

Holdings of repos fell to CAD195 billion from CAD205 billion, the lowest since May 13 and down from a peak of CAD211 billion about a month ago. Repo holdings had swelled from CAD15 billion in mid-March before the Covid-19 pandemic froze markets.

Governor Tiff Macklem is expected to affirm in a rate decision next Wednesday that bold QE is needed even after markets stabilize to pull the economy out of its deepest slump since the Great Depression. The purchases will help as the government begins consultations on plans to sell a record amount of long-term bonds to avoid rollover risk and lock in low yields.

The balance sheet stood at CAD528 billion as of July 1. Programs to buy up to CAD50 billion of provincial government bonds and CAD10 billion of corporates remain modest, with purchases to date of CAD5.2 billion and CAD140 million, respectively.

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

[TOPICS: M$C$$$,MC$$$$,MK$$$$,M$$CR$,M$$FI$,M$$MO$,MN$FI$,MN$MM$,MN$RP$]

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