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Bank of Canada unveils new measures to support key funding markets

A sign is pictured outside the Bank of Canada building in Ottawa, Ontario, Canada, May 23, 2017. REUTERS/Chris Wattie

TORONTO (Reuters) - The Bank of Canada announced on Monday new measures to help support key funding markets amid ongoing economic uncertainty, adding to efforts by global central banks in recent days to help relieve financial stress.

The central bank, which on Friday cut interest rates by 50 basis points in an emergency move, said in a statement it would broaden eligible collateral for its term repo facility to include the full range of collateral eligible under the bank’s Standing Liquidity Facility. The new measures, the Bank of Canada said, would exclude the non-mortgage portfolio.

It also said it stands ready to support the Canada Mortgage Bond (CMB) market if needed. This would include purchasing of CMBs in the secondary market, with an initial target of up to C$500 million per week.

Purchasing operations are to be conducted twice weekly and continue as long as market conditions warrant, with the first operation set for Tuesday, the bank said.

CMBs are guaranteed by Canada Mortgage and Housing Corporation, Canada’s housing agency. The proceeds of the bonds help provide liquidity to lenders in the housing market.

“The announcement by the BoC today adds to measures released over the last few days in order to increase liquidity in money markets,” said Simon Harvey, FX market analyst for Monex Europe and Monex Canada.

“Such liquidity measures are becoming common practice in developed markets of late and will continue in this vein as financial stresses remain apparent,” Harvey said.

Last week, the Bank of Canada said it would provide billions of dollars of additional liquidity by adding new term repo operations and buying back more bonds from dealers.

It also announced a new facility to support a key funding market for small and medium sized businesses.

Reporting by Fergal Smith in Toronto and Kelsey Johnson in Ottawa; Editing by Marguerita Choy and Matthew Lewis

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