Bank of Canada Deputy Governor Lynn Patterson said its planned term repo operations to smooth trading in fixed-income markets may reach C$10 billion early next year.
The proposed term repo operations should begin in the autumn and be phased in over six months, to reach a “steady state portfolio” of between C$7 billion and C$10 billion, Patterson said in the text of a speech she’s giving today in Vancouver.
“They will help the Bank gather intelligence and analyze changes in liquidity conditions in short-term funding markets,” she said. “Conducting term repos on a routine basis will facilitate a quick response to future market-wide liquidity shocks.”
The remarks elaborate on measures outlined last week to keep markets functioning in times of strain, to incorporate lessons from the 2008 financial crisis. The changes range from allowing private investors to buy more new government bonds to denying bailout funding to institutions that don’t have so-called living wills.
The central bank will reduce bidding at bond auctions to 10 percent of the value sold, from 20 percent, which would increase the amount of the benchmark bonds in the market by C$9 billion, based on 2014 issuance, Patterson said today.
Patterson also said the maturity structure of bonds the bank purchases will reflect the profile of outstanding government debt.
The speech didn’t mention the outlook for the Ottawa-based bank’s 0.75 percent policy interest rate ahead of the next decision scheduled for May 27.
New rules imposed after a financial crisis that cost the global economy $10 trillion, including demands that taxpayers aren’t on the hook for future problems, have made some trading more difficult and expensive, the bank said last week. Those pressures are also being seen in Canada, which had the soundest banks through the crisis according to the World Economic Forum, underpinning one of the fastest recoveries in the Group of Seven.