A Bank of Canada official said quantitative tightening will likely end in 2025, at which point the central bank will consider purchasing assets in both primary and secondary debt markets.

In a speech in Toronto, Deputy Governor Toni Gravelle reiterated that the program is expected to run its course once settlement balances have reached a range of $20 billion to $60 billion, from the current level of roughly $100 billion.

“The bottom line is the balance sheet normalization process is continuing as we laid out last year and we have tools to manage any temporary funding pressures that might come up along the way,” Gravelle said.

The remarks suggest the central bank’s plans to shrink its balance sheet haven’t changed substantially in the last year, and will help to end to speculation officials will be soon forced to wind down QT.

That’s now likely to happen “sometime in 2025,” slightly later than officials had initially planned, as officials now expect the government of Canada will hold fewer deposits on the central bank’s balance sheet, keeping settlement balances elevated for longer.

The normal long run level for settlement balances was the same range as previously outlined by Gravelle in March last year. But the deputy governor says the bank is now considering how it will resume making asset purchases, weighing whether to buy government of Canada treasury bills and bonds in secondary markets, during primary debt auctions, or a combination of both.

In the speech, Gravelle explained that the resumption of purchases was meant to stabilize the bank’s balance sheet, and reiterated that’s different than the pandemic era asset purchases intended to stimulate the economy.

“We will start buying government of Canada bonds and other assets again as part of our normal balance sheet management. Those purchases will not be quantitative easing.”

Gravelle reiterated that the bank is able to continue QT even as it lowers interest rates to more normal levels. When the program ends, the bank said it will no longer buy Canada Mortgage Bonds, and aim to diversify purchases.

“We want to restore a more balanced mix of assets with a broader range of maturities, including more short-term assets than we hold now. Government of Canada bonds will still be our biggest asset type,” the deputy governor said.

The central bank under Governor Tiff Macklem has been shrinking its balance sheet for about two years, withdrawing the extraordinary stimulus quantitative easing provided during the COVID-19 pandemic. Its assets have fallen to around $307 billion from a peak of more than $575 billion as it allows government bonds it holds to mature, draining liquidity from the financial system.

That’s resulted in the withdrawal of settlement balances — interest-bearing deposits used as a means of payment in Canada’s high-value payment system, called Lynx.

Earlier this year, liquidity pressures in funding markets led some economists and strategists to question whether Canada’s financial system was already running short on settlement balances, a situation that might have hastened the end of QT.

Gravelle reiterated that the cause of recent strains in overnight funding markets were not a sign the bank will need to stop shrinking its balance sheet earlier than planned.

The Canadian Overnight Repo Rate Average, or Corra, was stuck above the Bank of Canada’s overnight-rate target for much of January, spurring the central bank to intervene with a series of repo operations. The government of Canada also reintroduced auctions of receiver general balances during this period, and Corra has reconverged to the bank’s overnight rate.

Officials held the key overnight rate at 5 per cent for a fifth straight meeting in March. Economists surveyed by Bloomberg expect policymakers will start lowering borrowing costs in June.