Toni Gravelle: The end of quantitative tightening and what comes next
Remarks by Mr Toni Gravelle, Deputy Governor of the Bank of Canada, at VersaFi (formerly Women in Capital Markets), Toronto, Ontario, 16 January 2025.
The views expressed in this speech are those of the speaker and not the view of the BIS.
Introduction
Good afternoon. Thank you, Tanya, for the kind introduction. And thank you to VersaFi for hosting this event.
The Bank of Canada's balance sheet has been larger than normal for a few years now. That's because of the role it played during the COVID-19 crisis, in making sure financial markets could work properly and in setting the economy on a path to recovery.
As we began to emerge from the worst of the pandemic, we ended quantitative easing (QE) in October 2021. Six months later, in April 2022, we started shrinking the balance sheet through quantitative tightening (QT), a process that continues today. Under QT, we have been letting our bond holdings roll off the balance sheet as they mature, without replacing them.
Last year, I said we thought that QT, also known as balance sheet normalization, would end sometime in 2025. Well, it's 2025. And since I had also promised to deliver any news about QT ahead of time, that is why I am here today.
When QT ends, we will be back to business as usual for how we manage the balance sheet. This will look a lot like how we managed it before the pandemic, which I outlined in a speech last March. Essentially, we'll be purchasing assets mainly to offset the growth of currency in circulation-the cash in your wallets.
But some things have changed in the five years since the start of the pandemic. In particular, the payment system has evolved, and so has our monetary policy implementation framework. As a result, some evolution in how we manage our balance sheet is needed. So, today I'll give you an update on:
- when, roughly, we expect QT to end
- how we will manage the balance sheet after QT ends and we resume our business-as-usual asset purchases
- what the likely drivers are of recent pressures in overnight funding markets