07:46 AM EST, 01/30/2025 (MT Newswires) -- The Bank of Canada Wednesday announced the end of quantitative tightening (QT), with the first term repo operation set for March 5, and also lowered the deposit rate by an additional 5bps so 30bps in total, noted RBC.

An end to QT at some point in H1 was flagged in the speech by Deputy Governor Toni Gravelle two weeks ago. However, the numbers the BoC used at that time -- C$50 billion to C$70 billion -- suggested a bit later than the early March timing it announced for the start of adding replacement assets, said the bank.

However, early March is within the guidance provided and a slight surprise on timing rather than a completely new development, pointed out RBC.

The details provided by the BoC on Wednesday at the end of QT are consistent with the Gravelle speech, stated the bank. Term repos will come first, followed by Government of Canada (GoC) bill purchases at auction later this year and GoC bond purchases via the secondary market starting around the end of 2026.

For term repos, operations will be one month (28 days) and three months (84 days), with initial operation days set for March 5 (one month only) and March 19 (one month and three months). Initial sizes will be in the C$2 billion to C$5 billion range, with the latter presumably for the operation with both maturities.

RBC assumes the BoC will want term repos to replace ORs on the balance sheet, with ORs (and potentially ORRs) being used as more ad hoc implementation tools.

The collateral eligible for term repos will be federal and provincial government and guaranteed securities, excluding inflation-linked and stripped securities, added the bank. This return to pre-pandemic collateral isn't surprising given it is a balance sheet normalization -- not a quantitative easing -- process.

Empirically, the collateral used for the operations leaned heavily towards provincial securities pre-pandemic and RBC estimates that to be the case going forward as well.