BoC joins global effort to ease funding strain

Tue Mar 11, 2008 12:59pm EDT
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By Louise Egan

OTTAWA (Reuters) - The Bank of Canada will lend a total of C$4 billion ($4 billion) to market players this month and next as part of a global effort by central banks to ease liquidity strains in stressed money markets.

The bank, which said Canadian markets were experiencing less pressure than those in other countries, announced it would enter into 28-day term purchase and resale agreements for C$2 billion on March 20 and another C$2 billion on April 3.

The operations will be co-ordinated with separate actions by the U.S. Federal Reserve, the Bank of England, the European Central Bank and the Swiss National Bank.

Canada's contribution is tiny compared with the Federal Reserve, which will lend up to $200 billion of Treasury securities for 28 days.

But unlike the United States, Canadian participants will have access to Bank of Canada cash rather than bonds.

"You give them your government bonds, or provincial bonds, or a few other products, and you get cold, hard cash in exchange for a length of 28 days," said Eric Lascelles, chief economics and rates strategist at TD Securities. "So the Canadian one, on a dollar-per-dollar basis, is actually the superior, preferable one," he said.

"The offset in Canada is that it's pretty much chump change compared to the U.S. ... Even per-capita, we're still doing about one-tenth the size," he said.

Stocks on the Toronto Stock Exchange shot up 1.8 percent, or 236.62 points, at the start of trade to 13,241.71, emboldened by the joint central bank plan. U.S. stocks also soared. In early afternoon trade, the main TSX index was up 0.92 percent, or 119.23 points, at 13,124.32.   Continued...

<p>The Governor of the Bank of Canada, Mark Carney, speaks in Vancouver British Columbia, February 18, 2008. REUTERS/Lyle Stafford</p>