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

Comments are closed

Just Posted

Sooke’s homeless reflect on housing situation

Ed MacGregor Park a new temporary home for Sooke’s homeless population

Langford approves permit for 124-unit mass timber building

Tallwood 1 to be completed by late 2021

Undercover operation exposes prominent human trafficking problem in Greater Victoria

VicPD’s Operation No More took place in mid-June at a local hotel

Book stores in Victoria notice uptick in sales for anti-racism titles

White Fragility, How to be an Antiracist are among the best selling titles

Victoria man in custody after shooting in 100-block of Gorge Road East

The man is facing recommended charges including assault with a weapon

‘This year is unlike any other’: Trudeau delivers Canada day address

Sophie Gregoire Trudeau and the Prime Minister release video celebrating the national holiday

Tsilhqot’in Nation demands meeting with feds on declining Fraser River chinook stocks

The Nation wants to partner with DFO to rebuild and recover the stocks

Gov. General honours Canadians for bravery, volunteer service

Five categories of winners presented on Canada Day

COVID-19: Should non-medical masks be mandatory in Canada?

New poll shows Canadians are divided on the rules around mandatory masks

‘A little bit scary for everybody’: Air passengers wary as new rules take effect

Masks or face coverings have been mandatory on flights since April 20

Library’s Summer Reading Club goes virtual

This literacy program is usually offered in person

VIDEO: Prince William and Kate chat with B.C. hospital staff about COVID-19

Seven-minute video posted to Youtube on Canada Day

River centre says heavy rains could bring flooding to central, northeastern B.C.

Water levels are already unusually high and river banks can be extremely unstable

Most Read