The Bank of Canada on Friday (March 27) made the surprise announcement that they are dropping the key interest rate to .25 per cent.
The unexpected rate cut, which constitutes a 50 basis point drop, was announced with an eye to bolstering the country’s economy as it grapples with the spread of COVID-19.
“Low interest rates help to cushion the shock by easing the cost of borrowing, said Stephen Poloz, Governor of the Bank of Canada.
“We are also working to keep the financial system functioning, helping make sure credit is available to people and companies.”
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Poloz also announced two new programs to help the country’s economy navigate this uncertain time and come out poised for a faster recovery.
First, the Commercial Paper Purchase Program (CPPP) will help to alleviate strains in short-term funding markets and thereby preserve a key source of funding for businesses.
Secondly, a BoC press release says, to address strains in the Government of Canada debt market and to enhance the effectiveness of all other actions taken so far, the Bank will begin acquiring Government of Canada securities in the secondary market.
“This will help address strains in the Government of Canada debt market and to enhance the effectiveness of all other actions taken so far,” Poloz said.
“The intent of our decision today is two-fold: to immediately support the financial system so it keeps on providing credit, and, over the longer term, to lay the foundation for the economy’s return to normalcy.”
The next scheduled date for announcing the overnight rate target is April 15, 2020.