Flaherty Says Canada Liquidity Cushion to Be Ready Early

Finance Minister Jim Flaherty said the Canadian government will finish building a liquidity cushion by the middle of 2013, which will bolster investor confidence in the country’s bonds.

The government had originally planned to complete the plan, which will increase liquidity levels by C$35 billion ($35 billion), by March 2014.

“Given strong and continuing demand for government of Canada securities, it is both advantageous and prudent to have the government’s prudential liquidity plan in place a full nine months ahead of schedule,” Flaherty said today in a statement posted on his department’s website.

The plan, originally announced in Flaherty’s 2011 budget, increases government deposits with financial institutions and the Bank of Canada. The cushion means Canada is adopting the international standard for banks by covering at least one month of its projected cash flows, including coupon payments and debt refinancing, Flaherty said in the statement.

Canada has boosted its liquid foreign exchange reserves by C$10 billion and government deposits held with financial institutions and the Bank of Canada have risen by $15 billion, Flaherty said in the statement. Deposits held with the Bank of Canada will increase by another $10 billion by “the summer,” according to the statement.

The government said in 2011 the cushion would have no impact on the budget balance, since additional borrowing would be offset by a rise in returns on interest-bearing assets.

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