02:20 PM EDT, 03/21/2024 (MT Newswires) -- Having gone through the speech delivered earlier Thursday by Bank of Canada Deputy Governor Gravelle, Ian Pollick, Managing Director & Head, FICC Strategy (Fixed Income, Currency & Commodities) at CIBC Capital Markets, has outlined the "finer" details.

Pollick said: "The Bank of Canada continues to suggest they will be using a floor system to implement monetary policy. Going back to a corridor system is too difficult to fine tune settlement balances, so they are not abandoning the way policy is implemented for the time being. In terms of when to end QT, the Bank still believes in the C$20 billion to $60 billion range, and will likely try to operate a floor system with the minimal amount of reserves possible. This is the Bank attempting to calibrate the Lowest Comfortable Level of Reserves (LCLoR). It is also very clear that the Bank is anchoring QT in such a way as to blend both a bond portfolio (non-borrowed reserves) and a very small liquidity pool via lending facilities (borrowed reserves)."

To end QT early, Pollick noted the BoC would look at the following:

1. Persistent upward pressure on the overnight repo rate plus widespread take-up (across many counterparties) in overnight repo operations, or the need for multiple rounds per day.

2. Broad-based funding pressures that go beyond the overnight repo market.

3. Lynx participants needing advances from our Standing Liquidity Facility for end-of-day funding market intelligence from market and payment system participants that indicates concern about a lack of liquidity that could be due to longer-lasting factors instead of temporary ones.

Pollick noted the BoC made it explicit that QT can continue "even when the Bank starts easing." In fact, he also noted, the Bank explicitly said that cuts and QT can co-exist "unless" the Bank is going below neutral such that it is adding stimulus and "not just operationally normalizing the policy rate".

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