Third 50-Basis Point Canadian Central Bank Rate Cut Since March 4

March 27, 2020

At a regularly scheduled Governing Council meeting on March 4, the Bank of Canada’s overnight policy rate was cut to 1.25% from 1.75%, a level that had prevailed since a 25-basis point hike in October 2018. A statement released after that meeting observed that Canadian GDP was close to potential and inflation near target but warned about the coming shock of the Covid-19 pandemic to the Canadian and world economies and expressed a readiness “to adjust monetary policy further if required to support economic growth and keep inflation on target.”

Nine days later after an emergency meeting of monetary officials, the policy rate was cut by a half percentage point again, and the released statement then justified the additional easing by citing “serious consequences for Canadian families, and for Canada’s economy” and “lower prices for oil that will weigh heavily on the economy, particularly in energy intensive regions.”

The third 50-basis point rate cut this month announced today leaves its level at a record low of 0.25%, which policymakers consider its “effective lower bound.” Today’s statement declares an intent ” to support the financial system in its central role of providing credit in the economy, and to lay the foundation for the economy’s return to normalcy.” The statement also characterizes the easing as an appropriate complement to fiscal stimulus and introduces other steps to boost market liquidity and functionality. The central bank will purchases at least C$ 5 billion per week of government securities over a wide expanse of maturities, and it is launching a new commercial paper purchase program.

At the next scheduled Bank of Canada policy meeting on April 15, a new quarterly Outlook will be published, updating the bank’s macroeconomic projections.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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