Primer on Implementing Monetary Policy Essay

3055 Words Jan 25th, 2014 13 Pages
June 2010 A Primer on the Implementation of Monetary Policy in the LVTS Environment1 Introduction The Bank of Canada’s method for implementing monetary policy is closely linked to the system through which payments clear and settle daily. Coincident with the introduction by the Canadian Payments Association of an electronic system for the transfer of payments (the Large Value Transfer System, or LVTS), a new approach to the implementation of monetary policy was adopted on 4 February 1999.2 This primer summarizes the objectives and the key elements of the framework that the Bank uses to implement its monetary policy. It also includes a table that lists the key features of the framework and how they function in the LVTS environment and a …show more content…
Should this result in a change in the target for the overnight rate, the new rate is in effect on the day it is announced.
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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

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