BoC Deputy Governor Gravelle says the BoC is ready to act in the case of severe market-wide stress and provide liquidity support to the financial system; Bank's QT programme will likely end sometime around the end of 2024 or H1 '25

• QT is working but will take some time to run its course.


• If faced with extreme event that caused severe dysfunction in Government of Canada bond market, the bank could resort to large-scale GoC bond purchases.


• The bar is very high for the bank to use large-scale GoC bond purchases to support market functioning again.


• Bank would only be offering extraordinary liquidity in extreme market-wide situations, when entire financial system faced funding constraints.


• Penalty pricing should be built into extraordinary actions whenever possible to make programme unattractive once financial conditions improve.


• When penalty pricing is not possible, BoC would ensure programmes were appropriately structured in terms of size and duration.


• If bank were faced with a UK-style pension fund crisis, it could use its contingent term Repo facility; this would reduce need for bank to conduct outright bond purchases.


• This level is well below current level of roughly CAD 200bln; our best estimate is somewhere in the range of CAD 20-60bln.


• Bank has yet to decide what level of reserves are needed to implement monetary policy through a floor system; answer is not yet set in stone.


• In future BoC may once again face macroeconomic situation where policy rate is at effective lower bound; in this case, might need to use QE.


• BoC expects standard emergency lending operations to ease bond market liquidity operations in most cases.


• BoC continues to expect inflation to come down in months ahead but will need to see further slowing in core inflation to get inflation back down to 2%.


• Canadian banks are not immune to spillover from events elsewhere, which can negatively affect things here.

29 Mar 2023 - 17:30- Fixed IncomeImportant- Source: Newswires