The Bank of Canada has lowered its interest rate by half a percentage point to 1.25 per cent. After the rate cut, the bank rate is 1 ½ percent and the deposit rate is 1 percent.
Bank of Canada said that COVID-19 virus is a material negative shock to the Canadian and global outlooks. COVID-19 represents a significant health threat to people in a growing number of countries. In consequence, business activity in some regions has fallen sharply and supply chains have been disrupted. This has pulled down commodity prices and the Canadian dollar has depreciated. Global markets are reacting to the spread of the virus by repricing risk across a broad set of assets, making financial conditions less accommodative. It is likely that as the virus spreads, business and consumer confidence will deteriorate, further depressing activity.
Bank of Canada, in their press release stated that though the GDP growth was expected to slow, the growth rate was slower in other areas than expected. In Canada, GDP growth slowed to 0.3 percent during the fourth quarter of 2019. Both business investment and exports weakened while consumption was stronger than expected, supported by healthy labour income growth. Residential investment continued to grow at a more moderate pace than earlier in the year.
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