Bank of Canada resorts to easing rates for the first time in nearly 5 years amidst Coronavirus crisis

The Bank of Canada is the latest to join the league of major economies that resorted to monetary policy leniency in an attempt to cope with the rising pressures from Coronavirus as it continues to disrupt business operations across the globe.

After Australia and the United States, the Bank of Canada (BoC) announced a 0.50%-point reduction in the overnight rate on Wednesday. The benchmark rate was cut from 1.75% to 1.25%. The BoC also reiterated that the rate cut was the need of the hour and the central bank is open to considering another rate cut in the upcoming months if the virus crisis continues to weigh on consumer and business confidence and keep economic activity under pressure.

Canadian Dollar Drops To 1.3430 Against The Greenback

Wednesday’s reduction in the interest rate marked the widest cut by the BoC in over a decade. The last time the BoC opted for a massive rate cut of 0.50%-point was during the financial crisis of 2009. Before Wednesday, Canada had not submitted to easing rates in nearly 5 years.

Top bankers from across the globe have been pouring confidence in the financial markets since last week with statements that the world central banks are committed to taking all possible measures to counter the impact of the health emergency on the global economy.

The immediate effect of the BoC’s announcement on Wednesday was negative on the Canadian dollar that lost traction and was seen trading at 1.3430 against the greenback from a high of 1.3330 on Wednesday. It, however, recovered a part of the loss later on Thursday morning with the USD/CAD currency pair currently exchanging hands at 1.3400.

Financial Markets Anticipate A 55% Probability Of The Next Rate Cut In April

At the time of writing, the financial markets estimate a 55% probability of the next rate cut (25 basis point) in April when the BoC holds its next policy meeting.

The morbidity of Coronavirus in Canada is greatly limited with only a few people reported as infected so far.

In separate news, the Royal Bank of Canada reduced its prime rate for borrowers from 3.95% to 3.45% on Wednesday that marked the first cut in almost 5 years. The Bank of Canada also highlighted on Wednesday that the economy is likely to miss its target of 1.3% annualized growth in the fiscal first quarter as suggested in the central bank’s guidance on January 22^nd.