Economy

Bank of Canada cuts key interest rate target to 0.25 per cent

Bank of Canada cuts key interest rate target to 0.25 per cent”

The BoC said it was the need of the hour considering the widespread impact of the Coronavirus pandemic on the financial system and the Canadian economy at large. "So here's what we're going to do to take some of that pressure off".

The Bank of Canada today lowered its target for the overnight rate by 50 basis points to ¼ percent.

For the next 12 months, the Bank will conduct primary and secondary market purchases of CP, including asset-backed CP, issued by Canadian firms, municipalities and provincial agencies with an outstanding CP program. Bank Governor Stephen Poloz, however, indicated as well that the bank has other tools it could use to help stabilize the increasingly shaky economy. Its efforts to maintain the functioning of the financial system are helping keep credit available to people and companies.

The interest rate cut takes the key rate to what the central bank referred to as "its effective lower bound" or the lowest level that rates can be set.

The BoC's surprise decision to cut interest rates to 0.25% provided an additional boost.

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The bank rate was pegged at 1.75 per cent at the beginning of the month, but was lowered mid month to 0.75 per cent with the new cut taking it down to 0.25 per cent. "It's doubtful that this significantly adjusts the economic outlook, but it should help moderate some of the biggest swings in the Government of Canada bonds market", he added.

Under the latter, the bank will purchase a minimum of $5 billion in Government of Canada securities per week, starting April 1.

Poloz said he will not dispute that the central bank's liquidity measures look like quantitative easing (QE).

Today Canada's central bank made an unscheduled announcement concerning its overnight lending rate, the rate upon which lending banks base their own rates to consumers and business.



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