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The Bank of Canada uses special purchases, part of open market operations, to increase liquidity in the Canadian market and lower overnight interest rates. It enters into special purchase and resale agreements with primary dealers, buying government bonds and selling them back the next day. The Bank assesses overnight funds and initiates special purchases if the rate is below its target. Advertising “special purchases” in retail does not refer to the Bank’s operations.
A special buy is a purchase made by the Bank of Canada as part of an open market operation designed to increase liquidity in the Canadian market overnight. This is done as part of a special purchase and resale agreement with a primary dealer, an entity that trades government securities in high volume. The special buy, in addition to increasing primary dealer and market liquidity by extension, also lowers overnight interest rates. The Bank of Canada enters into such deals if it appears evident that the market is trending in a direction that could benefit from lower interest rates and increased liquidity.
In a special purchase and resale contract, the Bank buys government bonds and the seller agrees to buy them back at a set price the next day. This has the effect of increasing liquidity because the Bank supplies currency to the dealer. It also lowers interest rates by freeing up money for borrowing. On the reverse, a sale and repurchase agreement, the Bank sells securities to a seller overnight, with the Bank buying them back in the morning.
Every day, in the late morning, the Bank of Canada assesses the rate at which overnight funds are traded. If this rate is below the Bank’s target, it initiates special purchase and resale contracts with main resellers. The Bank may be involved in trading government bonds and other types of government securities during overnight trading.
The Bank of Canada has been Canada’s central bank since 1935. Like other central banks, it uses open market operations to keep the economy stable and promote economic growth and economic activity. It is also involved in setting interest rates and other activities designed to push the economy in the direction of healthy growth. Open market operations of this nature must be carried out with care in order to avoid undue influence on the economy, which may suppress economic activity rather than promote it.
Advertising sometimes includes the phrase “special purchase” and, in that sense, does not refer to open market operations conducted by the Bank of Canada. Rather, it’s a language trick used to satisfy laws about how sales can be advertised. A special buy sale reflects a sale of merchandise that is of a different quality than a retailer’s regular merchandise and offered at a much lower price.
Asset Smart.
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