The Bank of Canada’s Quarterly Financial Report for Q2 2024 was released on August 22. This report provides noteworthy insights into its recent economic actions and financial position.
Financial Position and Economic Support
As of June 30, 2024, the Bank of Canada’s total assets stood at $273 billion, down 14% from the end of 2023. This decline is mainly due to the Bank’s ongoing quantitative tightening measures; maturing bond holdings were allowed to expire without being replaced, reducing its overall investment portfolio. The Bank’s investments in Government of Canada securities decreased by approximately$40 billion during the first half of the year due to bond maturities.
Interest Rate Movements and Impact
An area that real estate investors have been paying close attention to, the Bank of Canada decided to lower its policy interest rate by a total of 50 basis points in June and July 2024. The BOC indicated this reduction, which brings the rate down to 4.75%, was prompted by easing inflation pressures.
Balance Sheet and Liability Changes
The Bank’s liabilities, particularly deposits, decreased significantly, by 19% to $158 billion. This reflects the normalization of the balance sheet after measures taken during the COVID-19 pandemic. The decrease in the amount of securities sold under repurchase agreements, which fell by 42% to $3.85 billion, is also in alignment with this strategy.
Financial Results
The Bank of Canada reported net losses of $910 million for the three-month period and $1,844 million for the six-month period ending June 30, 2024. It reported that these losses were largely due to the fact that the interest expenses it paid on deposits exceeded the interest income earned from its investments, so, the cost of maintaining deposits at the BOC outpaced the returns generated from its investment portfolio, contributing to the overall financial shortfall during these periods.
The decrease in net interest expense did show that while the cost of holding deposits was still high, it was less severe compared to the previous year. The BOC confirmed that these losses do not impact its ability to perform its core functions and that it expects to “resume generating net income” over time.
Strategic Outlook
2024 is the final year of the BOC’s current strategic plan, Delivering on Our Promise. The plan focuses on supporting economic recovery, controlling inflation, and ensuring financial stability.
Risk Management and Future Considerations
The BOC indicated a continuing focus on managing risks, including financial, operational, and climate-related risks, as a priority.
The full Quarterly Financial Report can be viewed on the Bank of Canada website.
