by Ephraim Vecina, Mortgage Broker News
Amid its ongoing commitment to maintain its quantitative easing program, the Bank of Canada has reported its first ever monthly decline in the amount of Canada Mortgage Bonds (CMBs) held by the institution.
The central bank’s data showed that it held $9.66 billion in CMBs at the end of December, falling by 0.65% from November levels. While the decline is historic in a literal sense, the annual increase in CMB holdings last year was an astounding 1,803.13%, fuelled by the unprecedented measures that the bank implemented in response to the COVID-19 outbreak.
“The bank is maintaining its extraordinary forward guidance, reinforced and supplemented by its quantitative easing (QE) program, which continues at its current pace of at least $4 billion per week,” the BoC said early last month.
A Better Dwelling analysis of the BoC numbers pointed to a significant contributor of risk in the long term: the central bank overestimating the impact of the pandemic, resulting in the inexorable growth in home prices and sales activity seen during much of last year.
“When they set out to flood the mortgage system, they were expecting a doomsday scenario,” Better Dwelling said, adding that the excess capital “can potentially contribute to higher mortgage rates down the road.”
The central bank has also warned of the more immediate threat posed by the ongoing second wave of COVID-19 infections.
“Canada’s economy had strong momentum through to late 2020, but the resurgence of cases and the reintroduction of lockdown measures are a serious setback,” the BoC said recently. “Growth in the first quarter of 2021 is now expected to be negative.
The bank has so far stood by the overnight rate’s current record lows, saying that the effective lower bound will be in place “until economic slack is absorbed so that the 2% inflation target is sustainably achieved.”
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