Question

P Flag question "The Bank of Canada today (July 15, 2020] maintained its target for the overnight rate at the effective lower bound of V4 percent. The Bank is also continuing its quantitative easing (QE) program" (Bank of Canada Press Release, July 15, 2020). i. Quantitative Easing (QE) is described by the Bank of Canada as one of 3 unconventional Monetary Policies. Explain carefully, (1) what Quantitative Easing, QE means in terms of the Bank's conduct of Monetary policy; and, (2) How specifically does Quantitative Easing, QE help to maintain the current Key Policy rate of interest at 0.25 percent? (3 Marks)

Answer 1

Answer i

In terns of bank of canada monetry policy , the Quantitative easing is a form of monetry policy ( unconventional ) in which the BOC purchases longer term securities form the market (open) so as to increase the supply of money and can encourage the investment and lending in canada

ii.

The QE made by BOC on july 15 will act to lower the interest rates by the depressing the terms premiums on the govt. bond (longer term ) .It will maintain the monetry interest rate at 0.25 percent by increasing the money supply which will lower the cost of money and the resulting increase in the supply of ohter assets in the market which will lead to lower interest rate because of lower cost of money .

Have a good day !