The Bank of Canada projects that quantitative tightening will conclude around 2025, as stated by Deputy Governor Toni Gravelle during a speech focused on the central bank's balance sheet management strategy.

From Quantitative Easing to Tightening

Initially introduced during the pandemic, quantitative easing involved purchasing government bonds from financial institutions using central bank funds. This strategy aimed to indirectly lower interest rates. Transitioning to quantitative tightening, the Bank now allows these bonds to mature without renewal, reducing settlement balances to approximately 100 billion.

The Path to Normal Operations

Gravelle highlighted that quantitative tightening would end when settlement balances fall within the 20 to 60 billion range. Subsequently, the Bank will resume normal market operations, purchasing financial assets to match the liquidity growth in the economy.

Meeting the Demand for Cash

"The financial assets we hold passively increase to reflect the growth of our main liability: the money in your wallet," Gravelle explained. The Bank responds to households and businesses' demand for more banknotes by printing and circulating them through the banking sector, aligning the value of circulating notes with nominal economic growth rates.