Bank of Canada holds rate steady at 0.25% and hints it has no plans to go any lower

Bank of Canada governor Stephen Poloz says the COVID-19 pandemic has hit Canada's economy hard. (Blair Gable/Reuters)

Bank expects economic activity to slow by as much as 30% from end of 2019

After cutting it three times in barely a month, the Bank of Canada kept its benchmark interest rate steady at 0.25 per cent on Wednesday, despite an economic outlook that’s looking more and more like one of the bleakest ones we’ve ever seen.

The central bank said in a release that it considers the current level of its rate to be its “effective lower bound.” That means the bank doesn’t have any plans to cut the rate to zero or into negative territory, despite the uncertainty of the COVID-19 pandemic that has devastated Canada’s economy.

The bank says it expects widespread lockdowns, layoffs and other drastic measures will have a dramatic impact on Canada’s economy in the months ahead. The bank says it thinks economic activity in the period between April and June will be between 15 and 30 per cent lower than it was at the end of 2019.

“Despite a high level of uncertainty, these estimates suggest that the near-term downturn will be the sharpest on record,” the bank said.

While the bank is signalling it doesn’t see a scenario where it would put its rate into negative territory, the bank says it is doing a lot of other things beyond interest-rate reductions to help support the economy.

Chief among them are various lending operations to financial institutions and asset purchases in core funding markets that the bank says have already amounted to $200 billion worth of support.

The bank expanded those measures on Wednesday by announcing it will soon start buying up even more bonds and other debts to help keep the economy running.

“The situation calls for special actions by the central bank,” the bank said. “To this end, the bank is furthering its efforts with several important steps.”

More bond buying

The Bank of Canada announced last month that it would buy $5 billion worth of federal government debt every week in order to support the economy. On Wednesday, it said it would keep doing that but also buy up to $50 billion worth of provincial debt and up to $10 billion worth of corporate debt in order to ensure there is enough of what central bankers refer to as “liquidity” — a complicated term that boils down to the simple notion of making sure there is enough cash in the system to allow normal transactions to happen.

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Source: Pete Evans | CBC News