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The Bank of Canada has moved twice Thursday to inject liquidity into money markets, issuing a total of $1.6-billion in “specials” so far.

It's the first time this month that the central bank has intervened, and is the highest liquidity injections since the credit crunch boiled over in August, and the biggest injection since January, 2000.

The central bank did not provide any official explanation of why it had to intervene so aggressively, except to say it was defending its key interest rate.

The U.S. Federal Reserve Board also injected significant liquidity on Thursday, leading analysts to believe the money market's liquidity problems in Canada are part of a global problem.

The Fed injected $47.25-billion (U.S.), the biggest injection since 2001, according to Bloomberg. However, about $40-billion of that was a renewal of a previous special operation that was expiring.

“It's global. Credit concerns seem to be pushing up the [inter-bank lending] rates,” said Ted Carmichael, chief economist for J.P. Morgan Canada.

If securities in Canada's overnight money market start trading at rates above the central bank's target rate of 4.5 per cent, the higher rate flags a liquidity problem to the Bank of Canada. The central bank routinely responds by making extra credit available at the target rate, thereby dragging the market rate back to target.

The Bank of Canada, like other central banks around the world, intervened heavily in August when the credit crunch was in full swing, and banks – concerned about the risk of counterparties' exposure to investments linked to subprime mortgages – scaled back their lending to each other.

Little intervention has been needed since then, however. The Bank of Canada had a couple of weeks of heavy intervention at the end of October, but other central banks have scaled back.

But inter-bank lending rates have risen above normal levels recently, said Mr. Carmichael, which suggests that banks are growing reluctant to lend to each other again.

“It's not clear that this is a one-day problem or the first sign of something that could get worse going into year-end,” he said.

He said he did not sense any panic on the part of the Bank of Canada about credit conditions. But he said the need for the central bank and the Fed to intervene suggests that the credit crunch is far from over.

“They [the liquidity injections] do indicate that there's real caution among banks about lending to one another,” he said. “And if they're cautious about lending to one another, then they'll be cautious about lending to businesses and consumers. They're protecting their balance sheets and are defensive.”

Canadian banks have announced a string of writedowns this week because of exposure to subprime loans in the United States. And there are signs that lending conditions are growing tighter in Canada.

Still, the Bank of Canada says overall, the tighter lending conditions are about the equivalent of a central bank hike of a quarter of a percentage point, no more.