Update: Bank Of Canada Injects C$945M Into Financial System Thursday

 Update (15:43PM EST) :

--Liquidity injection increased
--One-day repo transactions done to lower overnight rate
--Spokesman says they are "standard operations"

By Nirmala Menon

OTTAWA (Dow Jones)-- The Bank of Canada injected more liquidity into the financial market Thursday to reduce pressure on the overnight rate, actions that market participants said were taken primarily to head off tightness related to month-end flows and the coming long weekend.

The central bank increased its infusion of funds to C$945 million from C$555 million earlier in the day through special purchase and resale agreements or SPRA, according to data on its website. That's the largest infusion of funds in a year.

Bank spokesman Jeremy Harrison said the actions were "standard operations" to reinforce the overnight rate target, which is currently 1.00%.

Mark Chandler , head of Canadian fixed income and currency research at RBC Capital Markets said month-end payment flows, the coming long weekend in Canada and a short trading day on Friday have combined to create some tightness.

"There could be tightness in the system if one participant is caught short of funds, Chandler said in an interview. "It doesn't appear that there's any sort of systemic pressures going on."

SPRA are agreements to purchase government securities from primary dealers, for resale the next day. These one-day repo transactions were conducted regularly, and sometimes more than once a day, during the financial crisis to keep the overnight rate from drifting higher.

The Bank has conducted SPRAs on five days this year, including on Thursday. The previous ones were all in August.

Michael Gregory , senior economist at BMO Capital Markets , noted that the banking system globally has become "a little more stressed" since the Bank of Canada's last policy decision on July 19 , and Canada isn't immune.

"Those pressures are more profound, obviously, in Europe , and there are big name banks south of the border that are being mentioned in not the most positive light," Gregory said in an interview. "So there is a little bit of pressure, globally, in overnight markets. And some of that might just be rippling onto Canada's shores. We're not immune to those global pressures."

 Prior to the update (around 12:30PM EST):

OTTAWA (Dow Jones)-- The Bank of Canada  injected  C$555 million  into the financial system Thursday, an action that it typically takes to reduce the overnight rate.

The infusion of funds was made through special purchase and resale agreements, according to data posted on the central bank's website.

These one-day repo transactions are agreements to purchase government securities from primary dealers, for resale the next day.

The benchmark overnight rate is currently 1.00%.