Bank of Canada Ends Quantitative Easing

• Canada’s central bank has opted to end its quantitative easing program, signaling the beginning of the end of its extreme spending to keep interest rates low.

• Quantitative easing (QE) is a fiscal policy where a central bank buys large amounts of government bonds, pushing up the price/value of the bonds since there is an increase in demand for them. The bond yield or the rate of interest attached to them, decreases as the price of the bonds goes up. This in turn effects the cost of financial transactions linked to government bond yields including lowering the rates of mortgages and business loans

• For now the Bank of Canada has decided to hold interest rates at 0.25 per cent which is the same level it has been since March 2020, but this new decision signals the beginning of the process of increasing interest rates to pre-pandemic levels.

• Central banks from governments around the world such as the United States Federal Reserve and the European Central Bank (EU) have adopted QE policies as a response to the economic decline resulting from the coronavirus pandemic.