The Deputy Governor of the Bank of Canada (BOC), Tony Gravelledeclared on Wednesday that the BOC is prepared to act in the event of serious market tensions and provide liquidity support to the financial system, as reported Reuters.
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“QT will probably end sometime around late 2024 or first half of 2025; QT is working, but it will take some time to run its course.”
“If faced with an extreme event causing serious dysfunction in the Government of Canada (GoC) bond market, the bank may resort to large-scale GoC bond purchases.”
“The bar is set very high for the bank to resort to large-scale GoC bond purchases to once again support the functioning of the markets.”
“The bank would only offer extraordinary liquidity in extreme market situations, when the entire financial system would face funding constraints.”
“Penalty pricing should be incorporated into extraordinary actions whenever possible so that the program becomes unattractive once financial conditions improve.”
“If a bank were faced with a UK-style pension fund crisis, it could use its contingent term repo mechanism; this would reduce the need for the bank to make outright bond purchases.”
“This level is well below the current level of approximately C$200 billion; our best estimate is between C$20 and C$60 billion.”
“Canadian banks are not immune to spillover effects from events elsewhere, which can negatively affect things here.”
Market reaction
USD/CAD did not react to these comments and lost 0.15% on the day, trading at 1.3580.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
