BOC's Gravelle: Ready to act in the case of severe market-wide stress

Bank of Canada (BOC) Deputy Governor Toni Gravelle said on Wednesday that the BOC is ready to act in the case of severe market-wide stress and provide liquidity support to the financial system, as reported by Reuters.

Additional takeaways

"Quantitative tightening program will likely end sometime around the end of 2024 or first half of 2025; QT is working but will take some time to run its course."

"If faced with extreme event that caused severe dysfunction in government of Canada (GoC) bond market, bank could resort to large-scale GoC bond purchases."

"Bar is very high for bank to use large-scale GoC bond purchases to support market functioning again."

"Bank would only be offering extraordinary liquidity in extreme market-wide situations, when entire financial system faced funding constraints."

"Penalty pricing should be built into extraordinary actions whenever possible to make program unattractive once financial conditions improve."

"If bank were faced with a UK-style pension fund crisis, it could use its contingent term repo facility; this would reduce need for bank to conduct outright bond purchases."

"This level is well below current level of roughly C$200 bln; our best estimate is somewhere in the range of C$20 bln to C$60 bln."

"Canadian banks are not immune to spillover from events elsewhere, which can negatively affect things here."

Market reaction

The USD/CAD showed no reaction to these comments and was last seen losing 0.15% on the day at 1.3580.