March 27: Bank of Canada Cuts Interest Rates to 0.25 Percent

Credit: Bank of Canada

The Bank of Canada has lowered its interest rate by 50 basis points to ¼ percent. After the rate cut, the bank rate is ½ percent and the deposit rate is ¼ percent.

This is the third rate cut this month (March 2020).

The Bank said the decision comes after the abrupt decline in world oil prices and as the “COVID-19 is causing serious consequences for Canadians and for the economy.” Bank of Canada said that this unscheduled rate decision brings the policy rate to its effective lower bound and is intended to provide support to the Canadian financial system and the economy during the COVID-19 pandemic.

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Previous Rate Cuts:

On March 4: The Bank of Canada lowered its overnight rate by 50 basis points to 1.25 percent. After the rate cut, the bank rate was 1 ½ percent and the deposit rate is 1 percent.

On March 13: The Bank of Canada lowered its overnight rate by 50 basis points to ¾ percent. After the rate cut, the bank rate was 1 percent and the deposit rate is ½ percent.

Through its news release, Bank of Canada said that during the COVID-19 crisis:

  • To promote credit availability, the Bank has expanded its various term repo facilities.
  • To preserve market function, the Bank is conducting Government of Canada bond buybacks and switches, purchases of Canada Mortgage Bonds and banker’s acceptances, and purchases of provincial money market instruments.

For those who have a flexible mortgage, this means that your monthly payments will reduce provided the banks are willing to pass on the entire rate cut to its customers. According to the TD Bank website, the current TD Mortgage Prime Rate is 3.10% and for TD Home Equity FlexLine, the TD Prime Rate is 2.95%. TD Prime Rate should reduce correspondingly.

Bank of Canada also announced two new programs:

1: Commercial Paper Purchase Program (CPPP): To help alleviate strains in short-term funding markets and thereby preserve a key source of funding for businesses.

2: Bank will begin acquiring Government of Canada securities in the secondary market: 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. Purchases will begin with a minimum of $5 billion per week, across the yield curve. The program will be adjusted as conditions warrant, but will continue until the economic recovery is well underway. The Bank’s balance sheet will expand as a result of these purchases.

The Bank said that it is monitoring economic and financial conditions in coordination with other G7 central banks and fiscal authorities. The Bank will update its outlook in mid-April.

Read the news release.

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