Bank of Canada has cut the policy rate to 1.25%
Richard Laycock
other
Taking swift action in response to global and domestic markets, the Bank of Canada has cut the policy rate to 1.25% today.
The decision can be seen as a reaction primarily to the Coronavirus outbreak and its effect on global commerce.
Just two of 11 economists on Finder’s Bank of Canada interest rate forecast panel accurately forecasted the decision. However, nearly half of the panel thought the Bank should cut the rate, and the majority (91%) said the next rate movement would be down.
The reason so many experts didn’t forecast the cut comes down to timing. Finder surveyed the economists between 17-25 February. Since then Wall Street experienced its worst week since the 2008 global financial crisis and the OECD has warned the virus could halve global economic growth this year.
Earlier this week the Federal Reserve issued an emergency rate cut and Australia’s central bank, the Reserve Bank of Australia (RBA), decreased the rate to a record low of 0.50% in an effort to shield the local economy from a coronavirus fall-out.
Vice President and Deputy Chief Economist, Brett House, was one economist, alongside Professor of Economics at Concordia University, Moshe Lander, who accurately forecasted today’s rate cut.
“…The scope and scale of the novel coronavirus epidemic are both now much greater than the Bank of Canada anticipated in January,” he said.
“Since January, Bank communications have opened the door to a cut, and the most recent data and developments pave the way for the Bank to follow through at the March meeting.”
Director & Senior Economist at TD Economics Brian DePratto, was also in favour of a rate cut, despite predicting the rate would hold.
“The list of shocks and risks to the economy keeps getting longer,” he said.
“Risk management suggests that getting ahead of these challenges now is likely worth the tradeoff against housing/financial stability, particularly given that the macroprudential environment is considerably different now than even just a few years ago.”
When asked what level of impact the Coronavirus would have on the Canadian economy, over a quarter of panellists (27%) said the impact would be significant while the remainder said it would have somewhat of an impact.
Professor of Economics at the University of Toronto, Angelo Melino expects a significant impact.
“The slowdown in China will hurt commodity prices, and the disruption of supply chains will spill over to the rest of the world. Although so far it has been contained in Canada, this is a highly contagious disease and there is a substantial risk that it will become established here as well,” he commented.
You can find the full report here: https://www.finder.com/ca/bank-of-canada-interest-rate-forecast
