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

Barbecue thief leaves hat behind at Victoria residence

Anyone who recognizes the hat is asked to call VicPD or Crime Stoppers

Traffic impacted on the Malahat near Goldstream Park

Reported crash in northbound lane of highway

COVID-19: Saanich police respond to calls about skatepark gathering, group volleyball game

‘Some people are still not taking this seriously,’ officer says

VIDEO: Sooke teachers are ‘feeling good,’ show it off in song and dance for students

Edward Milne Community School staff rock out at end of planning week

Oak Bay driver flees on foot after collision on Beach Drive

Officers caught the driver shortly after

‘Hold our line’: 29 new cases of COVID-19 announced in B.C.

Saturday’s number of new cases marks the lowest in weeks.

Critic, workers’ group ‘disappointed’ Trudeau chose Amazon to distribute PPE

Amazon Canada said in an email to The Canadian Press that it is working with Canada Post, Purolator

Full World COVID-19 update: National Guard collect ventilators in New York; Spain, Italy improve

Comprehensive coronavirus update with news from around the world.

Nanaimo’s Harmac mill works to fill doubled pulp order for medical masks and gowns

Mill’s president says extra cleaning in place and workers are social distancing

Two people fined after B.C. police spot online ads re-selling 5,000 surgical, N95 masks

Police confiscated the masks, being sold at inflated prices, and now working with Fraser Health

Unclear if Cowichan couple refusing to self-isolate will face penalty

No fines or charges have been laid to date, including Cowichan couple who won’t self isolate

POLL: Will you be able to make your rent or mortgage payment this month?

With the COVID-19 delivering a devastating blow to the global economy, and… Continue reading

COVID-19: Postponed surgeries will be done, B.C. health minister says

Contract with private surgical clinic to help clear backlog

Black Press Media ad sparks discussion about value of community newspapers

White Rock resident hopes front-page note shines light on revenue loss during COVID-19 crisis

Most Read