As you may have seen in the news, the Bank of Canada lowered its intended target for the overnight rate by 50 basis points (BPs) to 1.25%, suggesting that COVID-19 (Coronavirus) poses a significant risk to Canadian and global business. I’ve received multiple requests to break this down in more detail, and how it can affect you and your home.
The Bank of Canada’s press release explains how the global issue COVID-19 is affecting business activity in countries all over the world. It has come as a massive disruption to supply chains and logistics processes, pulling down prices of commodities in global markets. In turn, the Canadian dollar has depreciated, and as the virus continues to shake the world's economies. As people see the Olympics at risk of cancellation, plane prices plummeting, and major news outlets discussing the risk of public spaces, consumer confidence will continue to depress. The Bank of Canada’s press release wraps up by saying that they are ready to adjust their monetary policy further if required to support economic growth and keep inflation on target.
The Bank of Canada is sending a strong message by moving a full 50 basis points. In the past, they have resisted this, due to concerns about contributing to an already burning Toronto and Vancouver housing market. But the change in direction comes from a real concern that the drop in Canada’s trade if sustained, will weigh on income growth, and other central banks are expected to follow in Canada's footsteps.