Rate of The Operating Band of Bank of Canada Question

Question Description

I’m working on a economics multi-part question and need an explanation to help me understand better.

  • In 2014, the bank rate of the operating band of Bank of Canada was 1.25%. What was the policy rate?
  • What would the Bank of Canada do to tighten the monetary policy? Increase or decrease the policy rate? Explain.
  • Assume that the settlement balances in the LVTS (the large value transfer system) are trading below the target overnight rate. How would Bank of Canada use its instruments — Open market operation (SPRA – Special Sale and Resale Agreement, SRAs –Sale and Repurchase Agreements, and Government deposit shifting) —, to influence the overnight rate in a manner that leaves aggregate settlement balances unchanged at the end of the day? You can use a hypothetical T-accounts to explain.

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