The Bank of Canada unveiled new measures to keep Canada’s financial system flowing and support mortgage markets, as central banks step up efforts to avert a liquidity and lending crunch amid tumultuous markets.
The bank issued a notice Monday that it will broaden the eligible forms of collateral under its term repo facility, under which the central bank temporarily buys treasury bills from dealers as a means to provide a “backstop” for financial institutions’ funding needs. It also said it “stands ready, as a proactive measure,” to purchase Canada Mortgage Bonds (CMBs) to ensure “that this important funding market functions well.”
The moves follow other measures the bank made last Friday, in conjunction with an emergency interest-rate cut, aimed at maintaining liquidity in Canada’s financial system as the growing COVID-19 crisis strains global markets.
“The Bank of Canada is taking concerted action to support the Canadian economy during this period of economic stress. Our measures will help ensure that financial institutions can continue to extend credit to both households and businesses,” the central bank said in a statement. “The bank continues to closely monitor global market developments, and remains committed to providing liquidity as required to support the functioning of the Canadian financial system.”
The Bank of Canada’s actions also come less than a day after its U.S. counterpart, the Federal Reserve, slashed its key interest rate by a full percentage point, to a range of zero to 0.25 per cent, and introduced other measures aimed at aiding an economy and financial markets that are buckling under the strain of the COVID-19 pandemic. Many observers anticipate that the Bank of Canada – whose own key rate stands at 0.75 per cent, well above the new U.S. rate, despite cutting twice in the past two weeks – may soon follow the U.S. central bank’s lead and reduce its rate to near zero. Monday’s release on the new liquidity measures gave no indication of further plans regarding interest rates.
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