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

Mike Letterman

Nov 24, 2022, 2:23 PM
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Bank of Canada governor Tiff Macklem updated the House finance committee on the central bank's balance sheet Wednesday. Photo by Sean Kilpatrick /THE CANADIAN PRESS

The Bank of Canada is on the verge of losing money for the first time in its history.

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The Bank of Canada's net interest income will turn negative if it hasn't already. The central bank has the ability to conduct monetary policy and its decisions will be guided by its price and financial stability mandates.

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Macklem said that the net interest income was turning negative after a period of above average income. The Bank of Canada will return to profitability after a period of losses. The size and duration of the losses will be determined by a number of factors, including the path of interest rates and the evolution of the economy.

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As of last week, the balance sheet had fallen to $415 billion from $575 billion, a decline of 28 percent.

The central bank's first attempt at quantitative easing was to increase the money supply by buying government bonds and other assets in order to keep rates low.

The Bank of Canada bought $5 billion of bonds a week until the end of 2020 and then stopped buying bonds in October of 2021.

Fast forward to 22 years from now. The Bank of Canada has raised the policy rate six times in the last six months. The Bank of Canada pays interest on settlements it made to purchase financial assets during the Quantitative Easing program.

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The central bank is not in the business of making money in the first place, according to most economists.

Macklem said there needs to be a solution to this problem and that one is coming, though the Department of Finance and Bank of Canada have not provided details on how they plan to address the issue.

Macklem said that the Bank of Canada will return to its two per cent target by the end of the year.

Macklem said the Bank of Canada's job is to ensure inflation is low. We are not there yet. The risks around our forecast are manageable. We are worried about the upside risks with inflation so high.

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