The Bank of Canada has cut rates by 150 bps in total this month

A Surprise Meeting From the BOE, But Not A Surprise Rate Cut

Posted Friday, March 27, 2020 by
Skerdian Meta • 2 min read

The Bank of Canada didn’t cut interest rates last year, at a time when other major central banks cut rates several times, as the trade war hurt the global economy. But the BOE was the first major central bank in the West to cut interest rates due to the coronavirus pandemic, even before the virus hit Canada.

They cut interest rates by 50 bps, from 1.75% to 1.25% in a surprise meeting, on the first week of this month, then did so again in the second week, bringing them to 0.75% and today they held another surprise meeting, cutting interest rates to 0.25%. So, down the rabbit hole they go, like everyone else. Below are comments from BOC governor Poloz, who is hinting that they might bring rates to -0.50%:


  • Intent of our decision is to support financial system and to lay foundation for return to normalcy
  • Buying government bonds will help to relieve strains in the fixed income market
  • Governing council stands ready to take further action as necessary
  • Rates below zero, down to -0.50% are in our toolkit. But experiences more recently have made us realize that side effects are ‘pretty significant’
  • It would be ‘non-sensible’ to go below zero.
  • Says this is likely the lower bound
  • Things we have done have improved market function but there continue to be strains
  • Commercial paper market is effectively frozen
  • Timing of move today was ‘effectively dictated’ by strains in markets
  • Staff is working hard on a new outlook for April 15 meeting but it’s very tough
  • Most of our focus today is on market function
  • QE is normally aimed at moving the yield curve but we’re trying to improve the functioning of the market
  • I can very confidently say there’s nothing about the economy that we know that they don’t know
  • Wilkins: Risky spreads have widened quiet a lot but also in CMBs, which are gov’t guaranteed. It reflects less liquidity
  • Wilkins: Bid/ask spreads in very core markets like gov’t of Canada bonds have gotten much wider
  • There was a disconnect between overnight rate and short-term rates so it made sense to cut now
  • Canadian dollar is important shock-absorbing factor, it’s impacted by commodity prices
  • One of the first effects was oil, so Canada has two shocks to deal with
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