The Bank of Canada has followed the US Federal Reserve with plans to flood its money markets with billions of dollars in extra liquidity as its markets threaten to become illiquid, like America’s main financial markets did on Thursday.
That will start on Monday with the first $C500 million in bond repurchase deals designed to inject money into the system and keep banks and others lending and borrowing.
The Canadian government is moving closer to shutdown because of the virus which continues to grab victims. The most high profile so far in Canada is Sophie Gregoire Trudeau, wife of Justin Trudeau, the Canadian PM, has tested positive to coronavirus. That news emerged around 1 pm Friday, Sydney time.
At the same time, doctors have told Mr. Trudeau to spend the next 14 days working from home.
The Canadian central bank cut its key interest rate by 0.50%, following the Fed’s example, and on Thursday revealed it planned to pump billions into the money markets, starting on Monday.
The Fed on Thursday said it would inject $US1.5 trillion that day and on Friday (when $US1 trillion of that will be spent) on bonds and notes with maturities of one and three months.
Because it is so close to the US, the Bank of Canada was expected to follow the Fed, which it did within hours.
The move will pump a minimum of $C7 billion into the country’s money markets.
The Bank said it was broadening its programs aimed at ensuring there is enough cash in the country’s financial system, in the latest indication of deteriorating conditions in Canada stemming from the coronavirus pandemic and the sharp pullback in crude-oil prices which is hitting hard.
The statement came after another tumultuous session on global financial markets, including one of the deepest one-day declines ever— down more than 12.3% — for Canada’s benchmark stock-market index.
It came as the Trudeau government announced a $C1 billion package that includes measures to ease access to federal benefits for workers who must be isolated or reduce hours to avoid layoffs at affected companies.
It also promises an increase in lending through Crown (Government) corporations to help companies access credit and flexible payment schedules with the Canada Revenue Agency.
The government also tabled a supply bill designed to keep governments and especially the public service and government corporations funded if the parliament is forced to close for an extended period of time.
The Bank of Canada said it would, until further notice, run bond buybacks across all benchmark maturities and be at least weekly. The first such buyback, of roughly $C500 million, will be held on Monday and target 30-year government bonds.
The central bank said it would add new term-repo operations with terms of six and 12 months, and those would unfold on a biweekly basis starting on Tuesday.
At present, the Bank of Canada conducts term repos — or repurchase agreements that act as a form of short-term lending to bond dealers — on a one- and three-month basis.
Next week’s six- and 12-month repo operations will aim to add C$7 billion to money markets. The last time the central bank conducted 12-month term repos was around the time of the financial crisis 11 years ago.
