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Bank of Canada cuts rates to 0.75%

The unscheduled decision was due to COVID-19 and low oil prices, the Bank said

Ruth Saldanha 13 March, 2020 | 1:48PM
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Bank of Canada Building

In an unexpected announcement today (March 13), the Bank of Canada lowered its target for the overnight rate by 50 basis points to 0.75%

“This unscheduled rate decision is a proactive measure taken in light of the negative shocks to Canada’s economy arising from the COVID-19 pandemic and the recent sharp drop in oil prices,” the Bank said in a statement, adding that as the situation evolves, the Governing Council stands ready to adjust monetary policy further if required to support economic growth and keep inflation on target.

It pointed out that the spread of the coronavirus is having serious consequences for Canadian families, and for Canada’s economy coupled with lower prices for oil, even since its last scheduled rate decision on March 4, will weigh heavily on the economy, particularly in energy-intensive regions.

“While everyone is behind the curve, Canada seems *less* behind the curve than most right now,” Frances Donald, Global Chief Economist & Head of Macro Strategy - Manulife Investment Management tweeted on her Twitter account.

This was in line with expectations for some, as Fiera Capital’s Candice Bangsund had said earlier this week. “Our view has always been that central banks would pledge to support the economy and largely stem some of the damage from the coronavirus during this volatile time in the economy, and of course, in the financial markets as well. Now from here, I think we're going to see a lot more in the way of stimulus from both central banks and from governments, as well in the way of fiscal stimulus,” she said.

"Central banks cutting interest rates are equivalent to injecting money into the economy by making it cheaper for borrowers to access capital," says Ian Tam, CFA, Morningstar's Director of Investment Research. "From an individual investor’s standpoint, these recent and possibly temporary rate cuts should not sway your long term asset allocation decisions which again largely depend on your ability to withstand risk (inclusive of interest rate risk)."

The Bank will provide a full update of its outlook for the Canadian and global economies on April 15. "We expect it to enact another 50 bp cut at its scheduled policy meeting in April, to take the policy rate down to 0.25%," Capital Economics said in a note about rate cut.

 

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About Author

Ruth Saldanha

Ruth Saldanha  is Senior Editor at Morningstar.ca. Follow her on Twitter @KarishmaRuth.

 
 
 

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