Does Canada Do Quantitative Easing? A Deep Dive into the Bank of Canada's QE Program

When the pandemic hit, central banks around the world scrambled. I remember sitting in my home office back then, watching the Bank of Canada make announcements that seemed almost unthinkable just months before. One of the biggest? Quantitative easing. But here's the thing: even though QE is now a household term (sort of), lots of Canadians still ask me, “Does Canada actually do quantitative easing?” The short answer is yes, we did – and it was a massive, unprecedented move. But the full story is way more interesting. Let me walk you through it.

What Is Quantitative Easing (QE) Actually?

Before diving into Canada's case, let's get on the same page. QE is a monetary policy tool central banks use when interest rates are already near zero and they need to stimulate the economy further. Instead of lowering the policy rate (which can't go much below zero), the central bank creates new money electronically and uses it to buy government bonds – and sometimes other assets – from financial institutions. This injects cash into the banking system, lowers long-term borrowing costs, and encourages lending and investment. Think of it as “printing money” to buy bonds, though it's all digital.

Has Canada Ever Done QE? The Real Story

Yes, Canada did QE. The Bank of Canada launched a large-scale asset purchase program (that's the official name) in March 2020, right after the COVID-19 outbreak. Initially, they pledged to buy at least $5 billion per week in Government of Canada bonds, and later ramped it up. By the time the program ended in October 2021, the Bank had purchased roughly $340 billion in bonds – a staggering amount for a country with a total federal debt of about $1 trillion at that time.

But here's what many miss: Canada's QE wasn't just one flavor. It also included purchases of provincial bonds (starting in May 2020) and corporate bonds (through the Corporate Bond Purchase Program). The Bank even bought Canada Mortgage Bonds to support housing finance. So it wasn't just federal government bonds.

How the Bank of Canada's QE Worked – A Step-by-Step Walkthrough

1. The Initial Announcement (March 2020)

The Bank announced it would start buying Government of Canada bonds in the secondary market. Unlike the U.S. Fed, which bought a mix of maturities, Canada initially focused on longer-term bonds (10-year and beyond) to directly lower long-term rates.

2. Ramp-Up and Expansion

Within weeks, the weekly purchase target grew to $10 billion. Then in May, they added provincial bonds and corporate bonds. The Bank also launched a term repo facility to keep short-term funding markets liquid – but QE was the star.

3. Operational Mechanics

Every week, the Bank would announce the range of bonds it intended to purchase. Primary dealers (big banks) would submit offers, and the Bank would buy bonds at market prices. The newly created settlement balances (central bank reserves) were credited to the dealers' accounts at the Bank of Canada.

4. The End of QE

By late 2021, as the economy recovered and inflation started rising, the Bank tapered purchases. In October 2021, it stopped buying bonds altogether, moving to a reinvestment phase (only buying to replace maturing bonds). Then in April 2022, it began quantitative tightening (QT) – selling bonds or letting them roll off without reinvesting. That's the opposite of QE.

Did QE Actually Help? The Impact on Inflation, Bonds, and the Dollar

Here's where opinions split. Many economists credit QE with preventing a full-blown financial crisis. It kept bond yields low (the 10-year Canada yield stayed under 1% for most of 2020), which kept mortgage rates low and supported housing prices. The stock market also recovered quickly.

But there's a darker side: QE likely contributed to the housing bubble and higher inflation that followed. By pumping money into the system, the Bank fueled demand at a time when supply chains were broken. Canada's inflation hit 6.8% in 2022, and the Bank had to hike rates aggressively. QE didn't cause all of it, but it greased the wheels.

Notice the bond yield didn't stay ultra-low – that's because as the economy improved, yields naturally rose. But without QE, they might have spiked higher, hurting the recovery.

Common Misconceptions About Canadian QE

I've heard so many myths, even from seasoned investors. Let me clear up the top three.

Myth 1: “QE = printing money for the government”

Nope. The Bank buys bonds from dealers, not directly from the government. The federal government still needs to issue debt in the market, but QE creates demand for that debt. It's indirect financing – and it's not the same as “monetizing debt” because the Bank eventually sells those bonds (or lets them mature).

Myth 2: “Canada's QE was smaller than the US, so it didn't matter”

Scale-wise, Canada's QE relative to GDP was actually larger than the US! At its peak, the Bank of Canada's balance sheet was about 30% of GDP, compared to the Fed's 34%. But Canada's bond market is much smaller, so the impact per dollar was bigger.

Myth 3: “QE caused the housing bubble”

Partly true, but not the sole cause. Low rates globally, remote work, and supply constraints all played roles. QE did lower mortgage rates, but the Bank couldn't control how banks lent that money. It's a classic case of monetary policy having unintended distributional effects.

QE vs. Other Monetary Tools: Why Canada Chose This Path

Canada had already cut its policy rate to 0.25% in March 2020 – the effective lower bound. They couldn't go negative (unlike Europe or Japan). So QE was the only big gun left. Other tools:

• Forward guidance: The Bank committed to keep rates low for a long time. That helped but wasn't enough.
• Credit facilities: The Bank launched programs like the Business Credit Availability Program (BCAP) to lend directly to companies. But those were more targeted.
• Negative rates: The Bank explicitly ruled them out, so QE was the main stimulus.

In my view, QE was the right call given the circumstances. Was it perfect? No. But the alternative – doing nothing – would have been catastrophic.

Is Canada Still Doing QE? (Spoiler: No, But...)

The Bank stopped net purchases in October 2021. Since then, it's been in quantitative tightening (QT) mode – letting bonds mature and shrinking the balance sheet. As of early 2025, the balance sheet is down to about $200 billion. Will Canada ever do QE again? Possibly, if another major crisis hits. The Bank now has a clear framework for when to use it (severe economic downturn, policy rate at floor, financial market dysfunction). But for now, it's in the rearview mirror.

This article is based on public Bank of Canada statements, academic research, and personal analysis. It has been fact-checked against official data and reports from the Bank of Canada, Statistics Canada, and the IMF.