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Bank of Canada Gives COVID-19 Market Update and Announces New Programs

On April 15, 2020, the Bank of Canada maintained its current overnight rate of 0.25%. The Bank Rate is correspondingly 0.5% and the deposit rate is 0.25%.

However, with the announcement, the Bank of Canada (BOC) also provided a Canadian economic outlook amid the COVID-19 pandemic and announced new programs to help weather the storm.

Canadian Interest Rate Changes

From March 4, 2020 to April 15, 2020, the BOC has changed the Canadian interest rate three times, going from 1.75% to 0.25%.

They said in the April 15 announcement that 0.25% is the “effective lower bound,” indicating the interest rate will not go any lower.

The main reason for the recent decreases has, of course, been the economic impacts of the novel coronavirus, COVID-19. The BOC spoke to these ongoing effects, including:

  • More than 1 million jobs lost in March across Canada.
  • More than 6 million people applied for the Canadian Emergency Response Benefit (CERB) in early April.
  • Oil prices are lowered.
  • The dollar has depreciated since January (though by less than many other currencies, the BOC noted).
  • A sudden halt in global activity.
  • And more.

“The necessary efforts to contain the COVID-19 pandemic have caused a sudden and deep contraction in economic activity and employment worldwide,” the BOC said.

To help ensure continued access to credit, the BOC has lowered the overnight rate by 150 basis points over the past three weeks and “conducted lending operations to financial institutions and asset purchases in core funding markets amounting to around $200 billion.”

On April 15, the BOC also announced more help to come.

Market Outlook and New Programs

Due to the ongoing uncertainty, the BOC said they could not provide a complete forecast at this time. However, they did note analysis suggesting that the level of real activity was down 1% to 3% in the first quarter of 2020 and will be 15% to 30% lower in the second quarter, compared to 2019 Q4.

CPI inflation is expected to be close to 0% in the second quarter of 2020, primarily due to the transitory effects of lower gasoline prices.

Beyond the measures already taken, the BOC said the next challenge is managing increased demand for near-term financing. To that end, they announced new programs, including:

  • Continuation of purchasing at least $5 billion in Government of Canada securities per week in the secondary market.
  • Increasing the level of purchases as required to maintain proper functioning of the government bond market.
  • Temporarily increasing the amount of Treasury Bills it acquires at auctions of up to 40%.
  • A new Provincial Bond Purchase Program of up to $50 billion. This will supplement the Provincial Money Market Purchase Program.
  • A new Corporate Bond Purchase Program where the BOC will acquire up to $10 billion in investment grade corporate bonds in the secondary market.
  • Further enhancing the term repo facility to permit funding for up to 24 months.

“These measures will work in combination to ease pressure on Canadian borrowers,” the BOC said.

“As containment restrictions are eased and economic activity resumes, fiscal and monetary policy actions will help underpin confidence and stimulate spending by consumers and businesses to restore growth.”

The next BOC announcement is scheduled for June 3, 2020.

Read the full text of the April 15, 2020 announcement here:

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