Bank of Canada Cuts Rates to 0.25%, Plans Asset Purchases

Marco Green
March 27, 2020

The Bank of Canada has lowered its target for the overnight rate by half a percentage point to 0.25 per cent.

This is the "lower bound" according to the Bank of Canada and is meant to help support the Canadian economy in light of the COVID-19 pandemic.

The Bank of Canda is also launching two new programs; The Commercial Paper Purchase Program to help alleviate strain in short-term funding markets and the Bank will begin acquiring Government of Canada securities in the secondary market.

Further details are available here.

The interest rate cut takes the key rate to what the central bank referred to as "its effective lower bound" or the lowest level that rates can be set.

The move was necessitated by quickly deteriorating conditions, including a flood of new jobless claims last week, that suggest the economy is poised to suffer one of the sharpest drops in economic activity in history.

As the spreading coronavirus outbreak paralyzes economies globally, the energy-heavy Canadian economy is also having to contend with the crash in oil prices - prompting a steady drumbeat of recession calls.

This type of program is similar to a type of monetary policy known as quantitative easing (QE), although the bank noted that its purchases would be across the entire yield curve, rather than attempting to influence specific bond yields, as typical QE programs do.

The central bank made the announcement in a press release on Friday morning.

Prior to Friday's cut, Canada had the highest central bank rate in the developed world at 0.75 per cent.

"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", the bank said.

The Bank of Canada has now lowered interest rates three times this month, with a cumulative easing of 1.5 percentage points.

Other reports by Click Lancashire

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