By Gloria Galloway
OTTAWA (MaceNews) – Canada has followed the United States by substantially lowering interest rates to buffer the shock of the COVID-9 virus that is reverberating through financial markets around the world.
The Bank of Canada Wednesday lowered its target overnight rate by 50 basis points to 1.25%, its largest single rate cut since 2009.
That cut led to a corresponding reduction in Canada’s Bank Rate which now stands at 1.5%, and in the deposit rate which is now 1.0%.
It is the first time that rate has been lowered since 2015.
In January, the Bank had predicted that the global economy would stabilize through 2019. But, in a release issued Wednesday to announce the rate drop, it said the virus represents a significant health threat to people in a growing number of countries. The anticipation of its fallout is disrupting both business activity and supply chains.
Commodity prices are down and so is the Canadian dollar. Inflation remains around 2%.
Bank officials began discussing the need for a rate drop last week and, on Tuesday, as the U.S. Federal Reserve cut its own benchmark interest rate by half a percentage point, the Canadians decided to do likewise.
The Canadian rate has not been this low since early 2018.
Growth in Canada in the fourth quarter of 2019 slowed to 0.3% in line with the Bank of Canada’s earlier predictions, and both business and investment were weakened.
Then came the virus which has caused anxiety for investors around the world as governments struggle to contain and mitigate it.
Canada is dealing, not only with the impacts of the disease, but with a number of other negative economic factors including rail blockades by Indigenous people and a strike by teachers in Ontario, the country’s largest province.
The Bank said it is becoming clear that the first quarter of 2020 will be weaker than predicted and, if trade continues to drop, it will negatively affect income growth. As a result, it said it is ready to adjust its monetary policy further if that is required to support economic growth and to keep inflation on target.
As the situation evolves, the Bank said, the Governing Council stands ready to adjust monetary policy further if required to support economic growth and keep inflation on target.