Bank of Canada cuts interest rates in face of coronavirus

The Bank of Canada cut its benchmark interest rate by half a percentage point, following a similar move by the US Federal Reserve to ease monetary policy in the wake of the coronavirus outbreak.

Central banks and finance authorities across the globe have vowed to enact stimulus measures as needed, with the spread of the virus causing angst among investors and weighing on the outlook for economic growth.

Canada’s central bank said on Wednesday the nation’s economy has been “has been operating close to potential with inflation on target”, but Covid-19 has presented a “material negative shock to the Canadian and global outlooks”. It said domestic growth in the first quarter would probably be weaker than it initially expected.

It cut its target for the overnight rate to 1.25 per cent from 1.75 per cent.

The virus has caused business activity in some regions to fall sharply in addition to disruptions in supply chains, dragging down commodity prices. “It is likely that as the virus spreads, business and consumer confidence will deteriorate, further depressing activity,” the Bank of Canada said in its policy statement accompanying its regularly scheduled meeting.

The central bank’s governing council “stands ready to adjust monetary policy further if required to support economic growth and keep inflation on target”, it said.

The Bank of Canada’s half-point reduction in rates matched an emergency rate cut this week by the Fed, the first cut of that magnitude since the financial crisis.

The Canadian dollar fell 0.2 per cent against its US counterpart. The yield on the 10-year Canadian note slipped more than 8 basis points to 0.881 per cent.

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