By Gloria Galloway
OTTAWA (MaceNews) – The Bank of Canada has joined other banks around the word in making credit more available and affordable to consumers and financial institutions as the Covid-19 pandemic causes unprecedented upheaval to the global economy.
The financial situation in Canada and elsewhere continues to be stressed as a result of the disease, but the bank’s actions, alongside steps taken by other monetary authorities, appear to be having a calming effect. Along with other developed nations, the bank made significant cuts to interest rates in March, which combined to lower its target overnight rate by a full percentage point to 0.75 percent. Financial markets will be watching to see if more rate cuts are coming.
The bank is also providing support to key financial markets and liquidity support to financial institutions. In the financial markets, the bank has undertaken a significant buyback program of Government of Canada bonds and expanded its purchases of Canada Mortgage Bonds.
These actions are not considered quantitative easing because their objective has been to create liquidity rather than affect interest rates, and quantitative easing would entail larger purchases of assets than the bank has done to date.
The Bank of Canada has also created a Bankers’ Acceptance Purchase Facility to support the Banker’s Acceptance market, a core Canadian funding market and a source of financing for small- and medium-sized corporate borrowers. And, on Wednesday, it created a similar program to support liquidity and efficiency in provincial bond and money markets called the Provincial Money Market Purchase Program.
As for supporting liquidity in financial institutions, the bank has lengthened the term over which it lends money to banks, widened the collateral it accepts to provide lending, and expanded the list of eligible institutions that can access its lending.
There is a term repo to primary dealers which allows banks to keep up with the demands of their customers, a contingent-term repo facility for pension funds and others that need cash flow, and a standing term liquidity facility that helps viable banks to better manage their liquidity needs.
The bank has also established a new Standing Term Liquidity Facility to allow banks to pledge a broader set of collateral, including mortgages, to increase their funding capacity.
The Bank of Canada is coordinating its actions with other international policy-makers and has established a US-dollar swap line with other central banks to ensure that Canada’s financial institutions have access to US dollars.