Bank of Canada Augments Unconventional Stimulus and Releases Quarterly Monetary Policy Report

April 15, 2020

During March, the Bank of Canada cut its interest rate target by 50 basis points each on three occasions — the 4th, 13th, and 29th of the month — and declared after the last reduction that the 0.25% overnight rate level constitutes an “effective lower bound.”

At today’s scheduled policy review, officials called the Canadian and global economic outlooks uncertain, noting merely that the “global economic recovery, when it comes, could be protracted and uneven.” Although the overnight interest rate was kept at 0.25%, a number of additional non-rate actions were taken to protect credit channels and ease pressure on Canadian borrowers. Today’s meeting coincided with the release of a new Monetary Policy Report in which today’s and other monetary policy actions taken since March are summarized as follows:

Monetary policy:

  •  Lowered the target for the overnight rate by a cumulative 150 basis points to the effective lower bound of 0.25 percent.

Support for the functioning of key financial markets:

  • Launched Bankers’ Acceptance Purchase Facility
  • Introduced program to purchase Canada Mortgage Bonds in the secondary market
  • Introduced Provincial Money Market Purchase program
  • Introduced Commercial Paper Purchase Program
  • Announced Provincial Bond Purchase Program & Corporate Bond Purchase Program
  • Launched program to purchase Government of Canada securities in the secondary market (minimum of $5 billion per week, across the yield curve)
  • Enhanced term repo operations to permit funding for up to 24 months
  • Activated Contingent Term Repo Facility

Liquidity support for individual financial institutions:

  • Coordinated with international policy-makers for US-dollar liquidity and announced that a US-dollar term repo facility would be made available on a contingency basis (should the need arise)
  • Launched Standing Term Liquidity Facility

The Monetary Policy Report refrains from making explicit baseline macroeconomic forecasts and instead explores two broad scenarios in qualitative terms. One considers a V-shaped recession, while the other assumes a more gradual and lengthy exit characterized by hesitant business and consumer confidence and some enduring structural economic damage. In the first instance, the economy regains its pre-pandemic level of activity sometime during next year, while such a point in the second scenario appears from a fan chart not to arrive until 2023. The IMF’s World Economic Outlook released recently projects a 6.2% average drop of Canadian real GDP in 2020 followed by a 4.2% average rebound in 2021.

Officials expect CPI inflation to hover around zero percent in the period just ahead and not to approach the 2% target until 2021 or perhaps end-2022 depending on the uncertain timing and strength of the economic recovery.

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




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