Bank of Canada Cuts Key Interest Rates for Third Time During Coronavirus

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Photo by Sean Colclough on Unsplash

As the coronavirus continues to increasingly spread through Canada, it’s causing serious economic consequences. And, as a result, the Bank of Canada has decided to once again cut its key interest rates by half a percentage point in response to the outbreak.

Not only does this mark the third time the Bank has cut interest rates since the outbreak first began, but the cut brings the overnight target rate to its effective lower bound.

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The Bank announced the unscheduled decision on Friday and said it’s lowered its policy rate by another half a percentage point to 0.25% in addition to saying it plans to acquire more commercial paper and government securities to help shield the nation’s economy from coronavirus fallout.

In a statement, the bank said the latest interest rate cut “cushions” the impact of the shocks by easing the cost of borrowing while ensuring the financial system has credit available to help residents and companies during this challenging time.

“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,” said the Bank in its statement.

The Bank also said to promote credit availability, it has expanded its various term repo facilities and to preserve market function, the Bank is conducting Government of Canada bond buybacks and switches, purchases of Canada Mortgage Bonds and banker’s acceptances, and purchases of provincial money market instruments.

Additionally, the Bank announced Friday it’s launching two new programs.

First, the Commercial Paper Purchase Program (CPPP), which will help alleviate strains in short-term funding markets, preserving a key source of funding for businesses.

Second, to address strains in the Government of Canada debt market and to enhance the effectiveness of all other actions taken so far, the Bank will begin acquiring Government of Canada securities in the secondary market.

Purchases will begin with a minimum of $5 billion per week, across the yield curve. The program will be adjusted as conditions warrant but will continue until the economic recovery is well underway. The Bank’s balance sheet will expand as a result of these purchases.

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