Toni Gravelle: Going back to normal - the Bank of Canada's balance sheet after quantitative tightening

Remarks by Mr Toni Gravelle, Deputy Governor of the Bank of Canada, to the CFA Society Toronto, Toronto, Ontario, 21 March 2024.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Introduction

Good morning. And thank you, Fred, for the kind introduction.

I last spoke here, virtually, almost three years ago. At that time, I updated you on the actions the Bank of Canada had taken to help financial markets and the economy get through the COVID-19 crisis.1

I expect you all remember all too vividly the overwhelming panic that engulfed financial markets when the pandemic hit. The resulting dash-for-cash mindset caused widespread dysfunction across key debt markets, including the market for Government of Canada (GoC) bonds. So we stepped in quickly and forcefully with several programs to make sure these markets could work properly.

Our actions did the job.2 Market functioning was restored. But in restoring market functioning-and, later, in supporting the economic recovery-we ended up substantially growing our balance sheet.

A lot has happened since then. As pandemic restrictions eased, inflation increased. In response, we rapidly raised our policy rate-our main tool for controlling inflation. And because of the progress that we have made on inflation, our monetary policy discussions have shifted from whether our policy rate is restrictive enough to how long it needs to stay at the current level.

We have also been shrinking our balance sheet through quantitative tightening (QT) since April 2022. Under QT, we let the bonds we hold roll off our balance sheet as they mature, without replacing them. So far, our asset holdings have declined by roughly $180 billion, or almost 40%, to about $300 billion.

After two years, we are getting closer to the end of that balance sheet normalization. So today I'm going to talk about how we plan to manage things after QT has ended. Though there will be some modest changes in the details, the main message is we will be back to normal balance sheet management. That is, we will buy assets simply to match the amount of liabilities on our balance sheet, the main liability being cash in circulation.