Bank of Canada winds down three emergency programs introduced because of the COVID-19 pandemic

The central bank shuts down three emergency programs introduced earlier in order to support financial institutions during the pandemic. The reason is weak demand for those programs, as the situation is improving.

On Thursday, the Bank of Canada said that starting with October 26, it will close two programs: Bankers’ Acceptance Purchase Facility (BAPF) and the Canada Mortgage Bond Purchase Program (CMBPP). In addition to it, the BoC will also reduce the frequency of the Term Repo program from once a week to every two weeks as of October 21.

Although the programs differ from each other with their focus, they all serve the same goal – to make sure the financial firms have access to cash so that they could lend it out to credit-worthy consumers and businesses.

Due to the mortgage bond program, the Bank was purchasing billions of dollars worth of insured mortgages from lenders. As a result, they were able to lend out that money to someone else.

Other two programs worked in a similar way, as they both reduced the cost of borrowing for financial firms, so that those lenders could lend money out to consumers and businesses as cheaply as possible.

According to the Bank, it was ready to take on up to $500 million worth of mortgages a week in March, and some weeks came close to that mark. However, the situation has changed in August, as since then, banks have been using the program much less.

“Canadian banks have more than enough cash today,” – noted Ian Pollick from CIBC. He says Canadian banks have almost $330 billion in cash now, which is 10 times more than before the pandemic. It’s understandable, why the demand for those programs is so weak these days.

Although the decision is a good sign that the situation may be normalizing, the BoC is ready to reopen the programs in case it’s necessary.

In Canada, economists don’t predict any sharp rates changes. They expect Canada’s 5-year yield to go up by only 0.45% by year-end 2021. It may lead to a slight increase in fixed mortgage rates.