Bank of Canada's Deposit-Rate Cut Appears to Fix Repo Market Strains
A recent change in how the Bank of Canada sets its deposit rate appears to be improving the functioning of money markets, lowering borrowing costs. The central bank's reform has worked to restore market liquidity, with the Canadian Overnight Repo Rate Average pricing at 2.99% on Friday, just below the Bank of Canada's policy rate of 3%. This change has prompted large institutions to use the repo market more, as they are no longer losing money by depositing funds with the central bank overnight.
- The restoration of market liquidity could have significant implications for interest rates and borrowing costs in the Canadian economy.
- How will the Bank of Canada's decision to increase the velocity of reserves affect the overall monetary policy framework?