Tiff McCallum admits Bank of Canada loses money for first time


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

Bank of Canada Governor Tiff McCallum on Wednesday updated the House Finance Committee on the central bank’s balance sheet. Photo by Sean Kilpatrick/The Canadian Press

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

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McCallum said the Bank of Canada’s net interest income — the difference between interest income on assets and the cost of paying off liabilities — will soon turn negative, if not already. However, he stressed that the dynamics would not shake the central bank’s ability to conduct monetary policy and that its decisions would be guided by its price and financial stability commands.

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“After a period of above-average earnings, our net interest income is now turning negative,” McCallum said in his opening address to the House Finance Committee on Nov. 23. “After a period of losses, the Bank of Canada will turn positive again.” Net Income: The size and duration of the damage will ultimately depend on a number of factors, including interest rate developments and the development of both the economy and the balance sheet.

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McCallum updated the committee on the balance sheet, noting that it peaked at $575 billion in March 2021 and had fallen to $415 billion last week — down 28 percent.

When the central bank began its first foray into quantitative easing (or QE) at the start of the pandemic, it increased the money supply by buying government bonds and other assets in an effort to stimulate the economy and support loans by lowering interest rates. Has been. almost zero.

During that time, the Bank of Canada bought up $5 billion a week of bonds until the end of 2020, slowed the pace, then shut down completely in October 2021.

Fast-forward to 2022. The Bank of Canada has raised its key rate six times since March, raising the reference rate from 0.25 percent to 3.75 percent. The higher rates increase the interest payments the Bank of Canada pays on settlements it made to purchase financial assets during its QE campaign.

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Most economists say that the central bank’s financial condition should not cause a significant ripple through the economy and that the institution is not out to make money.

The Treasury Department and the Bank of Canada have yet to provide details on how they plan to solve the problem, though McCallum said there must be a solution to the problem and hopefully there will be one.

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McCallum reiterated that the Bank of Canada’s focus is on rebalancing price pressures, which the central bank expects to return to its two percent target by the end of 2024.

“The Bank of Canada’s job is to make sure inflation is low, stable and predictable,” McCallum said. “We are still a long way from that goal. We consider the risks to our inflation forecast to be reasonably balanced. But with inflation so far above our target, we are particularly concerned about upside risks. Hey.

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