(OTTAWA) The Bank of Canada lost $522 million in the third quarter, posting its first loss in its 87-year history.
In its most recent quarterly financial report, the central bank said interest income on its assets had not kept pace with interest charges on deposits at the bank, which rose amid rapidly rising interest rates.
Aggressive increases in interest rates by the Bank of Canada this year have increased the cost of interest charges it pays on settlement balances deposited in major bank accounts.
Meanwhile, the income the central bank receives from the government bonds it holds has remained fixed.
The Bank of Canada has significantly increased the size of its assets during the pandemic, as part of its government bond purchase program. Also known as quantitative easing, this policy was part of the central bank’s efforts to stimulate the economy.
This asset expansion is now costing the central bank, as it paid off government bonds with the creation of settlement balances.
Speaking before the House of Commons Finance Committee last week, Bank of Canada Governor Tiff Macklem spoke about the expected losses.
He claimed the losses did not affect the central bank’s ability to conduct monetary policy.
He noted that the size and duration of the losses would depend on the path of interest rates and how the economy develops.
“After a period of losses, the Bank of Canada will return to positive net profit,” he said.
The Bank of Canada is turning to the federal government to find a solution to balance its books.
Although there are a few options available, some economists argue that the problem before the central bank is largely an accounting problem rather than a monetary policy problem.