Bank of Canada follows U.S. with half-point rate cut to soften blow of coronavirus

The Bank of Canada is cutting its key interest rate target by half a percentage point, dropping it to 1.25 per cent in response to the economic shock from the novel coronavirus outbreak.

The central bank says its target for the overnight rate is being trimmed because COVID-19, the disease caused by the virus, “is a material negative shock” to the country’s economic outlook.

In a written statement about the announcement, the bank said that prior to the outbreak, Canada’s economy had been operating “close to potential with inflation on target.”

“However, 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.” 

In January, governor Stephen Poloz opened the door to a possible interest rate cut if weakness in the economy was more persistent than expected.

In its statement issued today, the central bank says it’s becoming clear the Canadian economy won’t grow as much as previously forecasted for the first quarter of this year.

The bank points to disrupted supply chains and rattled business and consumer confidence, rail line blockades, job action by Ontario teachers and harsh winter weather.

The statement also says the central bank may further adjust its key rate if the situation calls for it.

The central bank was expected to cut its rate by one-quarter of a point and leave open the possibility of mirroring the American cut of half a percentage point later on.

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