The Bank of Canada building is shown in Ottawa on Wednesday, April 24, 2019. Economists say mounting cases of the novel coronavirus and ensuing unrest through the economy has upped the odds the Bank of Canada will cut rates this week and maybe more drastically than originally forecasted. (THE CANADIAN PRESS/Sean Kilpatrick)

COVID-19 concerns up odds Bank of Canada will cut rates, economists say

The virus has already dampened OECD expectations for economic growth this year

Mounting cases of the novel coronavirus and ensuing unrest through the economy has upped the odds the Bank of Canada will cut rates this week and maybe more drastically than originally forecasted, economists say.

The central bank’s announcement on its trend-setting interest rate lands Wednesday morning, and just days ago forecasters expected a cut of a quarter of a percentage point.

But on the eve of the announcement, the U.S. Federal Reserve swung first, cutting its key rate by half a percentage point after G7 central banks and finance ministers promised to “use all appropriate policy tools” to help stem financial concerns arising from the outbreak.

ALSO READ: Tensions rise as U.S. death toll from coronavirus reaches 9

Economists say the move may lead the Bank of Canada to issue a similar cut in the first of what could be multiple reductions to the central bank’s key interest rate target, which stands at 1.75 per cent.

In January, governor Stephen Poloz said the central bank could cut rates if the data supported it, or as insurance against a possible shock to the economy.

“Now with financial markets getting quite concerned that this isn’t just a mild outbreak that will slow economic growth but might have more dire consequences, we think the Bank of Canada, taking that on board, they’re likely to want to lower the policy rate,” Royal Bank of Canada deputy chief economist Dawn Desjardins said in an interview.

She added that such a move would really ensure that Canadian households and companies “are more confident that there are policies being implemented to mitigate some of the downside risk.”

The virus has already dampened OECD expectations for economic growth this year. In a report released Monday, the organization made of some three dozen wealthy economies, lowered its year-over-year growth for Canada by 0.3 per cent to 1.3 per cent.

TD Economics chief economist Beata Caranci and senior economist James Orlando wrote in a report on Tuesday that the cards are stacked against the central bank holding rates, despite concerns that it may stoke the fires of household debt.

ALSO READ: B.C. confirms 9th case of COVID-19 as man who travelled to Iran

“Even without an outbreak within a large urban centre, economic activity will be whittled away through more cautious behaviour to travel and attend activities,” the report said. The bank’s ”growth-at-risk framework argues that the next step should be a cut in the policy rate.”

Scotiabank’s expectation is for a 0.25 per cent cut on Wednesday, with a strong risk of a 0.5 per cent cut. Deputy chief economist Brett House said the Bank of Canada could add to underlying risk factors and possibly compromise growth if it didn’t shadow the move out of the United States.

“There is also a confidence effect by showing that authorities are acting,” House said in an interview.

A rate cut may not be enough to dampen economic shocks if people avoid spending at brick-and-mortar operations, pointing to a need for government stimulus to prod consumer spending.

A spokeswoman for Finance Minister Bill Morneau said the government was ready to “take action as necessary” to support the economy. Maeva Proteau added the government’s fiscal position gives it “the necessary leverage to respond to potential challenges if needed.”

The G7 statement released after Tuesday morning’s meeting didn’t propose any specific or immediate actions governments and central banks may take. Speaking in Halifax, Prime Minister Justin Trudeau said his government will “look for ways to minimize that impact” on Canadian businesses “and perhaps give help where help is needed.”

Jordan Press, The Canadian Press

ALSO READ: New coronavirus outbreak an important reminder

Like us on Facebook and follow us on Twitter

Coronavirus

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

North Cowichan to police popular trails to ensure physical distancing

“You can expect delays accessing Mount Tzouhalem, or even to be turned away.”

CVRD directors defer pay-raise discussion for 30 days

Board considering raise of $11,167 for electoral area directors

Cowichan doc spurs octogenarian dad to develop low-cost ventilator for COVID-19 patients

Graham Brockley takes concept to his dad who is trying to develop it to save lives

Pandemic’s good, bad and the ugly

Banding together will get us through this quicker than acting selfishly

Authorities should disclose COVID-19 cases in communities

Once we know the virus is among us though, we can be much more careful

‘We don’t need this right now’: B.C. man breaks up road rage incident

Two men were throwing punches on Tillicum Road in Saanich on Vancouver Island

Long list of events disrupted by COVID-19 around the community

Challenging situation affecting fundraisers, entertainment, sports and more

‘We will get through this’: B.C. sees new COVID-19 death, but 57% have recovered

A total of 1,066 people have tested positive for the novel coronavirus

Canada’s 75% wage subsidy is coming, but not for several weeks: finance minister

Subsidy will cost Canada $71 billion, but push down cost of emergency benefit, Morneau said

COVID-19: ‘The Ballad of Bonnie Henry’ recorded and released

LISTEN: Quick turnaround for song penned by B.C. Order of Canada musician Phil Dwyer

B.C. adding $300 to monthly income and disability assistance payments

‘Crisis supplement’ for COVID-19 for April, May and June

‘A matter of human decency’: Truckers’ union calls on gas stations, rest stops to fully re-open

Teamsters Canada wants feds, provinces to put pressure on facilities to re-open for transport workers

Hip tradition sing-along planned again for Canadians April 2

The Tragically Hip’s Paul Langlois is encouraging all to join him virtually in a’Porch Session.’

Migrant worker advocates blame feds, employers for COVID-19 outbreak at B.C. garden store

Migrant farm worker group calls on government for adequate health and safety requirements

Most Read