March 04, 2020: Canada's central bank on Wednesday cut its key lending rate by 50 basis points to 1.25 percent in response to the growing economic risk posed by the coronavirus epidemic.
The interest rate drop was the first in Canada since mid-2015, and followed a similar move on Tuesday by the US Federal Reserve and after G7 finance ministers and central bankers pledged a coordinated response to the virus.
“While Canada's economy has been operating close to potential with inflation on target, the COVID-19 virus is a material negative shock to the Canadian and global outlooks, and monetary and fiscal authorities are responding,” said the Bank of Canada.
The central bank also signaled that it stands ready if required to further cut rates in the coming months “to support economic growth and keep inflation on target.”
Analysts welcomed the announcement, but warned it was unlikely to be a panacea for the Canadian economy.
“It may support sentiment temporarily, but it will do little to offset the fear-driven economic damage from COVID-19,” said ING chief international economist James Knightley, warning of a possible economic contraction in the second quarter.
“The Bank of Canada didn't wait to see the patient ailing before delivering a dose of preventative medicine, but where it goes from here is a matter of epidemiology rather than economics,” added CIBC Economic's Avery Shenfeld.
The central bank said the global economy had been showing signs of stabilizing prior to the outbreak. But the novel coronavirus has become “a significant health threat” to people in several countries.
Across the world, around 3,200 people have died from the virus. More than 94,000 have been infected in 81 countries and territories, according to AFP's latest toll based on official sources.
