Skip to main content
The Globe and Mail
Support Quality Journalism.
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to
Just $1.99per week for the first 24weeks
Just $1.99per week for the first 24weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(}function setPanelState(o){dom.root.classList[o?"add":"remove"](,dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); } //

The Bank of Canada in Ottawa.

Sean Kilpatrick/The Canadian Press

The Bank of Canada has set a high bar for the eventual raising of interest rates. But that doesn’t mean the central bank is equally reluctant about scaling back its quantitative easing program, even if it’s not yet willing to say so out loud. They’re two separate and distinct questions.

In Wednesday’s policy announcement, the bank maintained that the economy still has a long and difficult road to full recovery from the COVID-19 recession, despite the clearly better-than-expected performance through the second wave of the pandemic. Significantly, the bank emphasized the damage to the labour market, taking pains to identify key groups (women, youth and low-wage workers) that have suffered more than others.

This was an important clarification on where the bank stands regarding raising its key interest rate from the current record low of 0.25 per cent, where it has stood since the bank made a series of rapid-fire cuts at the beginning of the pandemic.

Story continues below advertisement

The bank has committed since last July to hold the rate at this bottom “until economic slack is absorbed so that the [bank’s] 2-per-cent inflation target is sustainably achieved,” a pledge it repeated – again – in Wednesday’s statement.

Bank of Canada holds fast on rates, bond buying; sees economy gathering steam

BoC’s low-interest-rate policy could further heat housing market, experts say

Now, as the economy’s surprising resilience and the accelerating rollout of vaccines has raised hopes for a faster-than-expected recovery, the bank is making it clear that a closing of the output gap (the difference between what the economy produces and its full capacity) won’t be enough; the bank is looking for a closing of the labour gap, too. By expressing specific concern about the hardest-hit segments of the labour force, it is nudging the bar for full employment even higher.

The increased emphasis on labour slack – it was also the central theme of a speech by Bank of Canada Governor Tiff Macklem two weeks ago – may cool heels in the bond market, which has viewed the improving economy as evidence that the output gap might close sooner than previously thought, accelerating expectations of rate increases in the process.

Labour slack will almost certainly take longer for the recovering economy to sop up. The central bank wants the bond market to grasp that message in the latter’s zeal to pin down the rate outlook.

But the rate debate is all about what the world will look like a year or two from now. Officially, the bank is still talking about 2023 for the conditions being in place to start raising rates, although it kicked the door wide open to revise that when it updates its economic forecasts – certainly upward – in April.

The QE program – under which the bank buys $4-billion a week of Government of Canada bonds to try to tone down long-term interest rates – is tied much more to the here and now. The bank has pledged to continue the program only until the recovery is “well under way,” and has signalled that even before then it is ready to scale down the pace of purchases.

The better-than-expected economy implies “well under way” has moved closer. While it still may be many months away (and is quite intentionally open to subjective interpretation), many observers think scaling down purchases – “tapering,” as it’s often called – could begin as early as April.

Story continues below advertisement

Mr. Macklem clarified in a news conference last month that as long as the bank still makes “positive net purchases of Government of Canada bonds,” it considers it still has a QE program in place. So, it can reduce its weekly purchases well before reaching its “well under way” pledge, as long as the total amount of bonds it owns continues to rise, even as some holdings mature in the coming months and drop off its balance sheet.

Ian Pollick, global head of fixed income, currency and commodities strategy at CIBC Capital Markets, figures the central bank could cut its purchases in half and still remain net-positive in the program. That gives it scope for, say, a pair of tapers of $1-billion a week, before eventually exiting QE.

The improved economic outlook isn’t the only reason to think the Bank of Canada might do this sooner rather than later. The bank now owns nearly 40 per cent of the entire market for Government of Canada bonds; by Mr. Macklem’s own reckoning, 50 per cent is an approximate line at which its dominance could create undue distortions in the market. At the current pace of purchases, it still has a few months before that issue comes to a head, but clearly the runway is getting shorter.

It should be pointed out that the bank didn’t say much Wednesday that tipped its hand on the timing of tapering. Still, its clear acknowledgement of the much-improved economic landscape certainly sets that stage. The bank now has six more weeks to see if the recovery takes hold, as all indicators suggest it will, before an April retreat from QE that should by then look entirely appropriate – and entirely divorced from the still-distant interest rate question.

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the author of this article:

Follow topics related to this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to If you want to write a letter to the editor, please forward to

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies