Bank of Canada sees historic third-quarter loss of $522 million

OTTAWA –

The Bank of Canada lost $522 million in the third quarter of this year, marking the first loss in its 87-year history.

In the last quarterly financial report of the Central Bank, says that interest income from its assets did not keep pace with interest charges on bank deposits because interest rates have risen rapidly.

Aggressive interest rate hikes by the Bank of Canada this year have raised the cost of interest paid on settlement balances deposited in large bank accounts.

That way, while the income that the central bank receives from the government bonds it holds remains fixed.

The Bank of Canada expanded its assets dramatically during the pandemic as part of its government bond-buying program. Also known as quantitative easing, the policy was part of the central bank’s efforts to stimulate the economy.

This expansion of assets is now costing the central bank, which paid down government bonds while creating liquidation balances.

Speaking before the House of Commons finance committee last week, Bank of Canada Governor Tiff Macklem addressed the projected losses.

According to him, the losses do not affect the central bank’s ability to conduct monetary policy.

He stated that the size and duration of the losses will depend on the path of interest rates and the evolution of the economy.

“After a period of losses, the Bank of Canada will return to positive net earnings,” he said.

The Bank of Canada is looking to the federal government for a solution to balance its books.

While some options are available, some economists say the problem facing the central bank is largely an accounting rather than a monetary policy concern.

This report from The Canadian Press was first published on November 29, 2022.