Bank of Canada Boosts Two-Week Repo Use to Ease Corra Strain

Funding issues have re-emerged in Canada's money markets, prompting the Bank of Canada to implement various measures to ease strains, including increased use of two-week term repo operations. This comes as the Canadian Overnight Repo Rate Average (CORRA) experienced sustained pressures around the fall of 2025, and again spiked 20 basis points above target during quarter-end in early 2026, despite the central bank's interventions.

The Bank of Canada has adjusted its term repo operations, increasing dealer limits for Overnight Repo (OR) operations to $3 billion for each eligible participant from the previous $1 billion, effective July 15, 2024. Additionally, effective September 19, 2025, the Bank announced it would conduct two-week term repos on a weekly basis, and expanded eligible collateral to include federal and provincial inflation-linked bonds. The Bank also introduced one-month NHA MBS term repos and allowed unlimited collateral substitution in term repo operations.

Despite these efforts, analysts like Bank of America note that the Bank of Canada faces challenges controlling short-term rates. CORRA has consistently traded above the Bank's overnight target rate, reflecting underlying issues such as structural funding market imbalances and dealer balance sheet constraints. For example, during a quarter-end in early 2026, the Bank offered $44 billion in liquidity, but only $33.6 billion was taken up, with repo rates remaining elevated due to these constraints. The Bank has also frequently implemented overnight repo operations when CORRA prints 5 basis points above the policy target.

The Bank of Canada's quantitative tightening (QT) ended in 2025 when settlement balances approached their target range of $50 billion to $80 billion, but funding issues persist as the Bank winds down QT. The Bank's overnight repo transactions and RG auctions continue to be excluded from the CORRA calculation, and the Minimum Volume Threshold (MVT) for CORRA calculation will become dynamic, calculated as 30 percent of the five-day moving average of CORRA trimmed volumes.