The Financial Post reports in its Thursday, Sept. 11, edition that funding issues are cropping up in Canada's money markets again, prompting some analysts to recommend the Bank of Canada step in.
A Bloomberg dispatch to the Post reports that the Canadian Overnight Repo Rate Average, or Corra, has settled five basis points above the BOC's overnight rate for most of September. On a weekly basis, that is the widest spread since January and if it persists, officials may be forced to intervene again to improve market functioning. "This issue will continue creeping up unless there is a more permanent fix," said CIBC's Ian Pollick. He expects the BOC to make another change to its deposit rate before the end of the year. In January, the BOC lowered its deposit rate -- the rate it pays commercial banks on deposits of overnight money -- to set it at five basis points below the benchmark overnight rate. That means the deposit rate is currently 2.7 per cent.
The move was meant to incentivize large institutions that have access to Lynx, the country's high-value payment system, to use the overnight repurchase agreement market more. Last week, the BOC conducted a $12-billion repo operation, providing evidence that money-market strains have returned.
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