As Mark Carney steps aside from his role at the Bank of Canada to undertake all manner of easy money in the UK, we thought a reflection on the 'stealth' QE that he has been engaged with, very much under the radar, in the US' neighbor-to-the-north was worthwhile. It seems quietly and with little aplomb, Carney's BoC has grown its balance sheet by over 21% YoY - the most since 2009. If that was not enough to make someone nervous, the quantity of Canadian government bonds on the BoC's balance sheet has grown at a remarkable 46% YoY! All of this has taken place during a time when 'supposedly' the Canadian economy has been reasonably strong and foreign demand for debt high. With Canada's CAD267bn debt due in 2013, we suspect this 'stealth' QE will continue to rise.
Sure enough, something is going on. [Updated - maybe Operation Twist?]
The Bank of Canada expanded its balance sheet during the financial crisis as part of the government's strategy to provide short-term liquidity to the financial system - in particular by securities purchased under resale agreements (SPRA). This was wound down as financial markets recovered. But over the past two years, the Bank of Canada's holdings of Government of Canada bonds has gone from around $33b to $56b.
The increase on the liabilities side is in the government's deposits at the Bank of Canada:
This seems odd indeed. And the idea of 'stealth quantitative easing' is almost a contradiction in terms: much of the effectiveness of QE derives from its effect on people's expectations.
I don't remember any announcement about expanding the Bank of Canada's balance sheet, and a quick search through its press releases leaves me none the wiser.
Does anyone know what's going on?
(Thanks to Ben Parsons - @bfaparsons - for bringing this to my attention.)
You ain't been reading my blog?
Indeed I haven't, and I'm off to subscribe to his feed right now.