The Bank of Canada has injected significant liquidity into the system and began shrinking its balance sheet in April 2022, primarily by reducing clearing balances, or liabilities.

"We expect to announce the end of QT and the restart of our business-as-usual asset purchases in the first half of this year," Gravelle said in a speech in Toronto. The bank had previously said the program would end sometime in 2025. The effective settlement balance level provides banks with more room for capital injection during economic crises.

Gravelle said the bank sees an ideal level of clearing balances between C$50 billion and C$70 billion, down from C$130 billion currently.

"We expect clearing balances to reach the new estimate range around the middle of the year," he said, adding that the bank would start its normal asset purchase program around that time. He stressed that the asset purchase program does not mean that the central bank will provide economic stimulus again as it did during the epidemic.

“Our normal asset purchases before the pandemic were not QE (quantitative easing). Our normal asset purchases after the QT ends will not be QE either,” he added.

The asset composition will be broader, including not only Government of Canada bonds but also government treasury bills and term repo. He said the bank’s goal is to have nearly the same amount of term repo and Treasury bills as floating rate liabilities, including settlement balances.

Ideally, he said, banks would also hold an amount of government bonds equal to currency in circulation, but he warned that the ideal overall asset composition might not be achieved until around 2030. He said the Canadian government could start buying bonds as early as the end of 2026.