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Bank of Canada Rate Annoucement - March 4, 2020

March 4, 2020 | Posted by: Ken Fadel

The BoC cut its target for the overnight rate by 50 basis points today in response to the “material negative shock” of the COVID-19 virus.

The BoC lowered its key interest rate to 1.25%, the first cut to the rate since 2015.

The announcement comes a day after G7 ministers and bankers pledged to act in a coordinated fashion in response to the virus.  The BoC changes follows a similar change south of the border by the Fed.

In its release, the BoC noted much has changed since its last rate decision in January.

“Before the outbreak, the global economy was showing signs of stabilizing,” the bank said. “However, COVID-19 represents a significant health threat to people in a growing number of countries. In consequence, business activity in some regions has fallen sharply and supply chains have been disrupted.”

Economic repercussions as a result of the virus has also included lower commodity prices and a decline in the value of the Canadian dollar.  “It is likely that as the virus spreads, business and consumer confidence will deteriorate, further depressing activity,” the BoC noted.

In addition to COVID-19, the BoC cited a number of other factors contributing to weaker growth. The boost in activity expected from recent resolutions to trade disputes between the U.S. and China have not materialized. “In addition, rail line blockades, strikes by Ontario teachers, and winter storms in some regions are dampening economic activity in the first quarter,” the bank said. “In light of all these developments, the outlook is clearly weaker now than it was in January. As the situation evolves, Governing Council stands ready to adjust monetary policy further if required to support economic growth and keep inflation on target.”

With global interest rates already at or near historic lows, central banks do not have much more room to act in response to a major economic shock.  As such any additional measures may need to be fiscal in nature, such as tax cuts or increased government spending.

The BoC's next rate announcment is scheduled for April 15th.

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