The Bank of Canada slashed interest rates for a third time in a matter of weeks and announced plans to acquire more commercial paper and government securities to help shield the nation’s economy from coronavirus fallout.
The central bank lowered its policy rate Friday by another half a percentage point to 0.25 per cent, adding in a statement that the unscheduled rate decision brings the rate down to its effective lower bound. The Bank of Canada last cut rates to these levels in 2009, during the global financial crisis.
The move was necessitated by quickly deteriorating conditions, including a flood of new jobless claims last week, that suggest the economy is poised to produce one of the sharpest drops in economic activity in history.
Policy makers led by Governor Stephen Poloz announced two new programs: the Commercial Paper Purchase Program and the buying of Canadian government securities in the secondary market. The government securities purchases will begin with a minimum of $5 billion per week, across the yield curve, the bank said in its statement.
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.
The move by the central bank is part of a wave of policy rate cuts and brings Canada’s benchmark rate closer to most other advanced industrialized economies. The Bank of Canada has now lowered interest rates three times this month, with a cumulative easing of 1.5 percentage points.
The Federal Reserve has also cut by 150 basis points this month. In addition to lowering borrowing costs, the central bank has also announced in recent days a slew of new liquidity measures to inject cash into the banking system and money markets and to ensure it can handle any market-wide stresses in the financial system.
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