OTTAWA (Reuters) – The Canadian economy is moving closer to a point where the Bank of Canada will no longer need to continue adding stimulus through its quantitative easing (QE) program, but it is not there yet, Governor Tiff Macklem said on Thursday.

Macklem, in a speech the day after the central bank held its key rate here at 0.25%, said it would eventually move to a reinvestment phase, where it bought only enough bonds to replace those that are maturing. This maintains stimulus but does not add new stimulus.

When the time comes to start reducing the amount of stimulus, the Bank will likely do so by hiking rates, said Macklem, noting the reinvestment phase would continue until at least the first hike.

“As the recovery progresses, we are moving closer to a time when continuing to add stimulus through QE will no longer be necessary. We are not there yet,” Macklem said, adding timing would depend on economic developments.

“It is reasonable to expect that when we reach the reinvestment phase, we will remain there for a period of time, at least until we raise the policy interest rate,” he said.

The Bank of Canada has said it expects economic slack to be absorbed some time in the second half of 2022, at which point rates could go up. It will update its forecasts in October.

Macklem, speaking via web cast to a Quebec business group, said that while many of Canada’s hardest-hit sectors finally began to rebound over the summer, the recovery is still choppy and uncertainty remains.

He pointed to rising COVID-19 cases and supply chain disruptions as risks to the global recovery that were also weighing on Canada’s economic performance.

“We expect these global supply chain problems will gradually be resolved, but it could take some time,” he said.

The Canadian dollar was trading 0.3% higher at 1.2648 to the greenback, or 79.06 U.S. cents.

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