Home Economy Bank of Canada is losing money for the first time, says Tiff Macklem

Bank of Canada is losing money for the first time, says Tiff Macklem

by SuperiorInvest

But this will not affect the monetary policy decision, says the governor

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Bank of Canada Governor Tiff Macklem acknowledged on Wednesday that the central bank is on the right track lose money for the first time in its history.

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Macklem said the Bank of Canada’s net interest income — the difference between interest income on assets and its cost of servicing liabilities — will soon turn negative, if it hasn’t already. But he insisted that the dynamics would not shake the central bank’s ability to conduct monetary policy and its decisions would be guided by its mandates for price and financial stability.

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“After a period of above-average earnings, our net interest income is now turning negative,” Macklem said in opening remarks to the House Finance Committee on Nov. 23. “After a period of losses, the Bank of Canada will return to positive values.” the net profit. The size and duration of losses will ultimately depend on a number of factors, including the development of interest rates and the development of both the economy and the balance sheet.

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Macklem updated the committee’s balance sheet, noting that it peaked at $575 billion in March 2021 and has fallen to $415 billion as of last week — a 28 percent decline.

When the central bank launched its the first foray into quantitative easing (or QE) at the beginning of the pandemic increased the money supply by buying government bonds and other assets in an attempt to stimulate the economy and keep borrowing as mod by lowering rates to near zero.

During that time, the Bank of Canada bought $5 billion worth of bonds a week until the end of 2020, before slowing its pace and then stopping altogether in October 2021.

Fast forward to 2022. The Bank of Canada has raised its key interest rate six times since March, taking the benchmark rate to 3.75 percent from 0.25 percent. Higher rates increase the interest payments the Bank of Canada makes on the offsets it created to buy financial assets during the QE campaign.

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Most economists say that the financial situation of the central bank should not cause significant ripples in the economy, and the institution is not primarily concerned with making money.

The Treasury Department and the Bank of Canada have yet to provide details on how they plan to address the issue, though Macklem said the issue needs to be addressed and he expects some to come.

Macklem reiterated that the Bank of Canada’s focus remains trained on bringing price pressures back into balance, with the central bank expecting to return to its 2 per cent target by the end of 2024.

“The Bank of Canada’s job is to keep inflation low, stable and predictable,” Macklem said. “We are still a long way from that target. We consider the risks around our inflation forecast to be reasonably balanced. But with inflation so far above our target, we are particularly concerned about pro-inflationary risks.

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