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Bank of Canada announces higher target for settlement balances to reinforce the target for the overnight rate

Effective Monday, 22 July 2013, the Bank is increasing the target for the minimum daily level of settlement balances to $250 million, from its current level of $25 million. This measure will remain in effect until further notice.

Various indicators of the overnight interest rate have recently been slightly, but persistently, above the Bank's target for the overnight rate, indicating some ongoing frictions in the system. Today’s announced measure is designed to counter those frictions, and reinforce the Bank’s target for the overnight rate by strengthening market participants’ incentive to trade overnight balances with each other at levels closer to the target rate. 

The Bank continues to monitor conditions in the overnight market, and will conduct standard Special Purchase and Resale Agreements (SPRAs) or Sale and Repurchase Agreements (SRAs) at the target rate, as needed. The Bank may also further adjust the target level of settlement balances, depending on conditions in the overnight market.

Within the monetary policy implementation framework, the Bank of Canada sets a target for the overnight interest rate. The Bank’s overnight target rate is the rate at which major participants in the money market borrow and lend funds fully secured by acceptable collateral for a term of one business day. The Bank has three standard tools to reinforce the target rate:

  • a 50-basis-point operating band bound by the Bank’s overnight standing deposit and lending facilities;
  • the management of targeted daily settlement balance levels; and
  • conducting SPRAs or SRAs at the target rate. 1

Further background information on the  implementation of monetary policy in the Large Value Transfer System (LTVS) environment is available on theBank’s website.

Information on LVTS settlement balances and any market intervention is available under the monetary policy implementation indicators section of the Bank’s website.

For further information, please contact:
Jeremy Harrison
Bank of Canada
613 782-8782

Content Type(s): Press, Market notices
  1. 1. For further details on the implementation framework, see “The Bank of Canada’s Target for the Overnight Interest Rate Policy Implementation Framework,” available on the Bank of Canada’s website. []