OTTAWA, Oct 1 (Reuters) - The Bank of Canada has now injected a total of C$890 million ($899 million) in overnight money into the markets on Monday to lower the overnight interest rate toward the central bank's target and improve liquidity.
Earlier on Monday, the bank injected C$530 million and has now increased that total. The bank intervened regularly in August during a credit crunch, but stayed out of the market from mid-August until late September.
It operates through Special Purchase and Resale Agreements, buying securities with the agreement to sell them back the next business day.
What are "Special purchase and resale agreements (SPRAs)"
Repo-type operations in which the Bank of Canada offers to purchase short-term Government of Canada securities from jobbers (investment dealers) with an agreement to sell them back the next business day. They are initiated by the Bank to prevent the overnight rate from moving above the upper limit of the operating band or to signal a change in the band.
For more information on how the Bank of Canada implements this policy check out these links:
http://www.bankofcanada.ca/en/review/1998/r981b.pdf
http://www.bankofcanada.ca/en/lvts/lvtsmp3.pdf
http://www.bankofcanada.ca/en/financial/lvts_neville.pdf
UPDATE: Reader /Dev/Null sent me a link to this article, which, upon reading made me want to go out and buy canned goods, gold, and ammo.
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