Bank of Canada cuts rates again by 50 basis points to 0.25% to combat Coronavirus

Written by: Wajeeh Khan
March 28, 2020
  • Bank of Canada announces its second emergency rate cut in March to combat Coronavirus.
  • The central bank expresses willingness for further measures to support the economy.
  • BoC announced a new program by the name of Commercial Paper Purchase Program (CPPP).

The Bank of Canada (BoC) resorted to another emergency rate cut this month announcing a reduction of 50 basis points in its key overnight rate on Friday. The BoC said it was the need of the hour considering the widespread impact of the Coronavirus pandemic on the financial system and the Canadian economy at large.

In an emergency policy meeting held on Friday, Canadian lawmakers decided in favor of slashing the overnight interest rate from 0.75% at the start of March to 0.25% that marked the lowest in over ten years. The central bank’s previous emergency move was on March 13th when it had reduced rate from 1.25% to 0.75%. The BoC has now announced two emergency rate cuts in March on top of its regular, scheduled meeting on March 4th.

BoC Expresses Willingness For Further Measures

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With Coronavirus rising sharply and pushing the global economy into recession, the central bank expressed willingness to take further measures to offer support to the economy and keep inflation in line with the BoC’s annual target amidst the ongoing health emergency.  

In an attempt to minimize pressures in the short-term funding markets, the BoC announced a new program by the name of Commercial Paper Purchase Program (CPPP). The central bank also said that in the secondary market, it plans on buying the Canadian government securities. The BoC will start with £2.89 billion worth of purchase per week in the beginning.

According to the Bank of Canada:

“The spread of COVID-19 is having serious consequences for Canadians and for the economy, as is the abrupt decline in world oil price. The intent of our decision today is 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.

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Rates Strategist Andrew Kelvin’s Comments On The Rate Cut

Senior rates strategist Andrew Kelvin of TD Securities commented on BoC’s move and stated:

“Better late than never. The rate cut was a foregone conclusion. QE (Quantitative Easing) was sorely needed and we expect that we will see probably more QE announced within the next quarter, probably adding CMBs (Canada Mortgage Bonds) to the mix.

The Canadian dollar lost traction against the greenback in the forex market and jumped from 1.4050 to 1.4155 following the announcement of the rate cut. The USD/CAD currency pair, however, retreated from the daily high almost immediately and is currently trading at 1.4080.