Curve Your Enthusiasm
Excess hot potatoes
Feb 7, 2025
Aaron Carter, Executive Director on the Global Collateral Finance Desk at CIBC Capital Markets, joins Ian to unpack significant shifts in Canada’s monetary policy. They dive into the Bank of Canada’s move toward a corridor system and its game-changing implications for CORRA. The conversation shifts to cash flow management strategies, including the complexities of utilizing the repo market. Aaron also sheds light on the upcoming tri-party repo system and its impact on liquidity management, promising a more dynamic interaction with monetary policy.
34:22
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Quick takeaways
- The Bank of Canada's adjustment to a corridor system aims to incentivize institutions to utilize excess cash and improve market liquidity.
- Increased trading volumes following the deposit rate change suggest a strategic shift among institutions towards a more active cash management approach.
Deep dives
Deposit Rate Adjustment and Market Impact
The Bank of Canada recently reduced its deposit rate by five basis points below the target rate, catching many off guard. This adjustment was intended to enhance the velocity of cash within the financial system and address the concentration of settlement balances. The reduction creates an incentive for institutions to mobilize their excess cash rather than leaving it idle, as there is now a cost associated with keeping funds at the Bank. This move signals an acknowledgment of previously discussed issues regarding the distribution of reserves and the need for a more balanced system.
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