???? ?? ?????? ????????? ??, ??????? ?? ??? ??????? ???? ??????? ???? ?????? ??????
March 4, 2022
The Bank of Canada hiked its key interest rate to 0.5 per cent on Wednesday in an effort to “take some steam” out of the economy and tamp down on surging inflation, but it seems rate hikes are just the beginning!
Bank of Canada governor Macklem explained yesterday that rising interest rates are just one monetary policy tool they’ll use going forward. The other is quantitative tightening (QT), a program designed to roll back an experimental tool that helped home prices soar. So, what is QT?
Quantitative Tightening (QT) is the opposite of the Quantitative Easing (QE) program, and it lowers inflation. Instead of buying bonds to increase liquidity and lower yields, they do the opposite. The BoC said they plan on executing this by not replacing the bonds as they mature. This will reduce the state-supplied liquidity for credit markets and increase bond yields.
The desired impact of QT is also the opposite of QE — to reduce inflation and purge monetary excess. Credit gradually tightens, and liquidity is reduced. This brings up the cost of borrowing, improving affordability after an adjustment period. It does this by slowing consumption and thus price growth. Once again, the opposite of QE.
Over the next year, a combination of rising rates and QT will reverse elevated inflation. This is good news for everyone but real estate speculators since it means a healthy economy.