So, as you can see, even when the overnight rate can no longer be reduced, the Bank can still affect longer-term interest rates by using QE. How quantitative easing works Let’s turn our attention now to the mechanics of QE. Every week, the Government of Canada sells bonds to financial institutions—mostly commercial banks—that have been approved to participate in their auctions.
Under QE, the Bank buys these bonds from auction participants, not directly from the government. The Bank conducts QE operations through a reverse auction. When you think of an auction, you probably imagine someone selling goods, with people bidding to purchase them. When we conduct QE, we call it a reverse auction because it’s the opposite: we hold an auction to buy—not sell—government bonds.