The Bank of Canada’s announcement last week that it’s buying mortgage-backed securities is prompting concerns that it is acting unethically.
“How can you remain impartial if you’re one of the investors?” asks Davelle Morrison, a realtor with Bosley Real Estate. “That’s just not possible.”
Morrisson’s concerns are that the Bank of Canada will either continue raising interest rates to profit off of Canadians, or that it will avoid hikes to ensure Canadians make their payments.
“If they have a bundle of securities, are they thinking, ‘Let’s bring rates up,’ so they can make more money off them, are they not going to put rates up to make sure people can keep paying their mortgages?
“However, because when rates go up they don’t generally affect people whose mortgages they own, I would think they want to keep increasing the rates because it means they’ll make more money off their investments.”
In a statement last week about its intention to purchase the securities, the central bank attempted to allay ethical concerns that, perhaps inevitably, would arise.
“The Bank plans to allocate a small portion of its balance sheet for acquiring federal government guaranteed securities by purchasing Canada Mortgage Bonds,” the Bank of Canada’s statement read.
It added that it “will continue to adhere to its principles of neutrality, prudence and transparency and conduct its transactions in a manner that limits market distortions and minimizes impact on market prices.”
There will be three interest rate hikes in 2019, according to most predictions, and Morrison is suspect of the Bank of Canada’s timing to announce its purchases.
“The Bank of Canada knows it’s about to put rates up, so they’re buying their investment now so that they can make more money on it,” she said. “It sounds like insider trading, but because it’s the Bank of Canada everyone gives it a pass.”
After reviewing its balance sheet management, the Bank of Canada is buying mortgage-backed securities, including some Canada Mortgage and Housing Corporation-backed debt, to counterbalance liabilities—namely bank notes in circulation and Canadian government deposits. All of the Bank of Canada’s purchases will be in the primary market, beginning this year or in early 2019.