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The Bank of Canada on Wednesday decided to hold policy rate at 2.25% unchanged, as expected by markets. However, what is a notable is the Bank continues to show dovish bias given the recent rebound in economic data. 

Reserve Management Purchases (RMP) is a form of open market operations under which the Federal Reserve injects reserves into the banking system through "permanent" asset purchases with an aim to ensure the level of reserves remain "ample".

Canada's unemployment rate dropped substantially and unexpectedly to 6.5% in November, from 6.9% in the prior month, showing signs of a much-needed resiliency in the North American economy.

The Federal Reserve announced after the December meeting that it removed the aggregate limit on the Standing Repo Facility (SRF). Repo rates spiked toward the end of the week, with SOFR and the Tri-party General Collateral rate (TGCR) reaching 4.12% and 4.08% on Friday, respectively, breaching the Federal Reserve's overnight interest rate target range.

While GDP rebounded by 0.65% in Q3 (2.6% annualized), the expansion was driven almost entirely by a 2.2% drop in imports.

The Canadian economy saw a significant rebound in the third quarter. A 0.65% expansion in the quarter was more than enough to recover the downwardly revised 0.47% contraction in the previous second quarter.

"The [Standing Repo Facility (SRF)] rate is set at the top of the FOMC’s target range for the federal funds rate. This combination of an ample supply of reserves and an SRF rate at the top of the target range reduces the day-to-day reliance on the facility except during periods of significant upward pressure on rates resulting from strong liquidity demand or market stress," said John Williams

Why is the Fed's SRF failing? Top Fed officials called the issue a "leaky ceiling" that doomed Quantitative Tightening (QT). Learn how low bank participation and the leaky floor analogy suggest new policy changes.

Analysts are expecting the Federal Reserve to announce the end of quantitative tightening (QT) at the upcoming meeting this week. The speculation is fueled by Chairman Jerome Powell's speech earlier this month in which he mentioned the supply of reserves may reach an "ample" level "in coming months."

Quantitative tightening (QT) may reach its end point "in the coming months," said Federal Reserve Chairman Jerome Powell in a speech last week. What does it mean? Will QT finish before Powell's chairman term ends?