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OTTAWA — For the third day in a row, the Bank of Canada has injected about a billion dollars into the country's money markets in order to defend its target interest rate.
The central bank conducted two rounds of liquidity injections worth a total of $890-million.
The special operations came after the central bank injected $985-million last Thursday and $1.087-billion on Friday.
“My sense of the Bank is, they're very conscious about how overnight is trading,” said Ted Carmichael, chief economist for J.P. Morgan Securities Canada Ltd.
The central bank implements monetary policy by influencing the rate at which money trades on a 24-hour – or overnight — basis.
“I think the system is still illiquid. There's a lack of trust in the inter-bank market between counterparties.”
That's especially the case Monday, with ugly news from some of the world's biggest financial institutions about their exposure to securities linked to U.S. subprime loans and other shaky assets, Mr. Carmichael said.
Citigroup Inc. said its third-quarter profits will drop 60 per cent because of a $3-billion (U.S.) write-down related to structured securities. Switzerland's UBS AG, the world's largest wealth manager, said it will lose up to $690-million and cut 1,500 jobs.
Meanwhile, Credit Suisse said Monday it expects to report a third-quarter profit of at least 1-billion Swiss francs ($860-million U.S.), despite turmoil in the market.
The bank said its investment banking and asset management results had been adversely affected “by recent market events.”
The Bank of Canada pointed to a normal surge in demand for funds at the end of the third quarter – even though the quarter ended last Friday.
“The end of September is quarter-end for a number of foreign financial institutions, and technical upward pressure on the overnight rate is not uncommon at both month-end and quarter-end,” said spokesman Jeremy Harrison.
With a file from Associated Press
