Bank of Canada Restarts Overnight Repo Market Liquidity Injection Signaling Financial System Liquidity Issues

BoC Engages in Pushmi-Pullyu Monetary Operations

The Bank of Canada has restarted its overnight liquidity injections signaling the financial system requires additional capital to maintain interest rates at the 4.75% BoC target rate.

The BoC started Repo Operations with overnight cash injections of CAD $9.24B on July 17, 2024 that have now escalated to $16B on July 23.

At the same time that the BoC central bankers are injecting cash liquidity through the Repo facility, they are removing liquidity through their Quantitative Tightening (QT) program.

The BoC is pushing and pulling on the same liquidity rope.

Bank of Canada Overnight Repo Operations - source: Bank of Canada

The ability of the BoC to blow a series of escalating asset bubbles over decades with secularly declining rates followed by Quantitative Easing purchases of market assets to maintain inflated asset values appears to have reached an impasse.

The BoC has signaled that they need to tighten with QT while the easy-money dependent financial system that the BoC has built has now forced the BoC to simultaneously loosen with resumed Repo cash injections.

Of note, the last time the BoC engaged in overnight Repo Operations was at year-end 2023 and January 2024 to allow the banks to window-dress their annual financial statements.

This Repo Operation occurs in July during what is supposed to be a comparatively slow financial period.

The BoC’s interest rate policy statement on July 24 will make very interesting reading.

Gold and silver bullion are assets that are no one else’s liablity.

Best regards,

David Jensen