Primer on Implementing Monetary Policy Essay
This article is an update of Howard (1998). For more details, see The Framework for the Implementation of Monetary Policy in the Large Value Transfer System Environment, 31 March 1999. 3 The Bank of Canada retains the option of taking action between fixed dates, but it will only exercise this option in the event of extraordinary circumstances.
• The target for the overnight rate refers to the rate on collateralized, market-based overnight transactions. • The Bank of Canada uses the rate on overnight general collateral (GC) as its guide to conditions in the overnight market. • If required to reinforce the Target Rate, the Bank of Canada will intervene in the overnight market, typically at 11:45 to conduct open market buyback operations at the Target Rate, if required. The intervention is at midday to encourage market participants to trade with each other during the morning, when a large proportion of daily funding activity occurs.4 • To further reinforce the target for the overnight rate, the Bank is prepared to enter into multiple rounds of open market operations, and to conduct those operations outside of the regular time, including earlier in the morning, if necessary. • If the overnight GC rate is