Bank of Canada surprises with another interest rate cut to counter COVID-19

Rate cut comes on top of previous 50-point cut last week

Pete Evans · CBC News · Posted: Mar 13, 2020 2:20 PM ET |

The Bank of Canada has made an unexpected rate cut, cutting the central bank’s benchmark interest rate by 50 basis points to 0.75 per cent.

The central bank already cut its rate to 1.25 per cent at a previously scheduled meeting on March 4 to help counteract the impact of the coronavirus. Friday’s decision takes that one step further.

“This unscheduled rate decision is a proactive measure taken in light of the negative shocks to Canada’s economy arising from the COVID-19 pandemic and the recent sharp drop in oil prices,” the bank said.

Under normal circumstances, the bank meets every six weeks to set its interest rate, and only takes action outside of those time frames when the situation calls for it.

Friday’s decision shows just how seriously Canadian policy-makers are taking the coronavirus situation.

“As we’ve seen by the rapid-fire moves, you know, we could see another rate cut by the bank,” said Doug Porter, chief economist with the Bank of Montreal.

The bank’s next scheduled rate decision is set for April 15, at which point the central bank says it will “provide a full update of its outlook for the Canadian and global economies.”

Porter thinks the bank will indeed cut again, but likely not before that scheduled meeting. “At this point, we’re penciling in another 50-basis-point cut … which will take them down to 0.25, which is as low as we got during the financial crisis.”

The bank’s rate impacts the rates that Canadian savers and borrowers get for things like savings accounts and mortgages.

All things being equal, the bank raises its rate when it wants to cool down an economy that is overheating with high inflation. It cuts when it wants to encourage people to borrow, spend and invest.

The global coronavirus pandemic has many worrying about what will happen to Canada’s economy as workers are quarantined and trade routes grind to a halt.

The Royal Bank of Canada said Friday it expects Canada to go into a recession later this year.