The Bank of Canada announces the provision of liquidity support to the financial system

zahraa ahmed - | World News

Deputy Governor of the Bank of Canada, Tony Harafel, commented on questions regarding the exposure of the Canadian banking system to severe pressure during the coming period, coinciding with the continuous adjustment of interest rates and potential shocks that pose a threat to financial stability, stressing their full readiness to provide immediate support.

There is no concern from the Bank of Canada

At the same time, Gravelle explained that there is currently no concern on the part of the Bank of Canada about the safety of the financial system in Canada, despite the fear of many about the repercussions of recent decisions.

He added, during his recent speech in Montreal, regarding financial services, that the blockchain tightening program for the two “QT” centers will reach its completion by the beginning of next year, 2025.

Enhancing the stability of the financial system

He added, at the same time, that the recent mandate from the Bank to enhance the stability of the financial system has a great significance for its full readiness to act in the event of severe pressures at the market level, and the bank will be fully prepared to provide liquidity support to the financial system.

Banking turmoil in the United States and Europe

It is worth noting that this is the Bank of Canada's first comment on banking turmoil in the United States and Europe.

Gravelle also cited as instances of earlier interventions by the bank the financial crisis of 2008-2009 and the start of the COVID-19 epidemic. He also mentioned that there be future addresses for lessons gained.

Light moral hazard

If we have to step in once more, he said, our focus would be on reducing moral hazard since investors believe they can take great risks without bearing penalties should something go wrong.

Penalty pricing

Future exceptional measures would contain penalty pricing, which would make the program undesirable once financial circumstances improve, he said. These steps would only be employed in "extreme market-level situations, when the entire financial system faces financing constraints."

Buy Canadian government bonds on a large scale

Gravel added that should we once more be faced with a significant catastrophe and the bank unable to handle it.With its emergency tools, we might be in "break the glass" mode and might turn to mass purchase of Canadian government bonds.

Canada's financial system remains resilient

Although the Governor of the Bank of Canada had earlier confirmed that the Canadian financial system is still strong, the continuous change in high interest rates and possible shocks pose significant hazards to stability.

Interest rates have also peaked in 23 years, and the bank stated that it is keeping an eye on institutions' and consumers' capacity to handle debt in addition to tracking the valuation of some assets, which seem to have gotten beyond their capability.

Canada's financial system remains resilient

Furthermore noteworthy is the unambiguous indication of resilience of the Canadian financial system made by the Governor of the Bank of Canada. Households, companies, banks and other financial institutions have proactively adjusted to rising interest rates and withstand economic shocks over the past year; this change still has a long way to go and keeps financial stability under risk.

An increase in the share of borrowers who do not have a mortgage

People thought most likely to default on their debt in the future, the share of non-mortgage borrowers with a credit card amount at least 80% of their credit limit has now increased to 23%.

The inflation rate in Canada has fallen to its lowest level

Apart from the ongoing drop in fundamental indicators, which probably increases the likelihood of reducing interest rates in June, it is interesting to observe that the annual inflation rate in Canada has fallen to its lowest level in three years at 2.7%. This corresponds with expectations.

Furthermore noteworthy is Statistics Canada's indication that while gasoline prices helped to offset the slowdown in headline inflation, food, services, and durable goods' prices led the slowing down in headline inflation.

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zahraa ahmed
zahraa ahmed
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