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

Just Posted

City of Pitt Meadows Launches Local Business and Services Listing

Guide provides info which will encourage and enable residents to shop local

IN IT TOGETHER: Take good care of yourself, so you can care for others

Maple Ridge woman offers series of wellness columns aimed at helping navigate through COVID-19

Historical artifact found in Maple Ridge returned to Katzie First Nation

Katzie chief Grace George is grateful to have stone maul returned

Housing market slows in Maple Ridge and Pitt Meadows

“No urgency” says local real estate agent

Maple Ridge scout makes nifty tool to aid front-line workers

Quinn Callander, 12, is using a 3D printer to make hundreds of ear guards

COVID-19: Trudeau says 30K ventilators on the way; 3.6M Canadians claim benefits

Canada has seen more than 17,000 cases and at least 345 deaths due to COVID-19

Logan Boulet Effect: Green Shirt Day calls on Canadians to become organ donors

While social distancing, the day also honours the 16 lives lost in the 2018 Humboldt Broncos Crash

COMMENTARY: Knowing where COVID-19 cases are does not protect you

Dr. Bonnie Henry explains why B.C. withholds community names

As Canadians return home amid pandemic, border crossings dip to just 5% of usual traffic

Non-commercial land crossing dipped by 95%, air travel dropped by 96 per cent, according to the CBSA

B.C. wide burning restrictions come into effect April 16

‘Larger open burns pose an unnecessary risk and could detract from wildfire detection’

B.C. secures motel, hotel rooms for COVID-19 shelter space

Community centres, rooms reserved for pandemic self-isolation

Look at hospitalizations, not recovery stats for COVID-19, B.C. professor says

Cases in hospital are a definitive count of people who have the novel coronavirus

B.C. First Nations want to launch fight of Trans Mountain pipeline approval

Last month, the Supreme Court of Canada decided not to hear five challenges about the pipeline

Most Read