Definition
Quantitative easing (QE) is an unconventional monetary policy tool used when the policy rate is already very low and cannot be reduced sufficiently.
**How it works**: - The central bank creates electronic money and repurchases government (or mortgage) bonds on the secondary market - Increased demand for bonds drives up their price and drives down their yield - Lower bond yields transmit to fixed mortgage rates
**Bank of Canada and QE**: - Massively deployed in April 2020 (COVID-19): federal bond purchases of up to $5B/week at peak - Goal: keep 5-year bond yields (benchmark for 5-year fixed rates) low - Quantitative tightening (QT) began: April 2022 (stopped purchases, then non-renewal at maturity)
**Link to mortgage rates**: Fixed mortgage rates track Canadian 5-year government bond yields — themselves influenced by BoC QE/QT programs.