{"id":40387,"date":"2020-03-04T18:34:16","date_gmt":"2020-03-04T23:34:16","guid":{"rendered":"http:\/\/prefblog.com\/?p=40387"},"modified":"2020-03-04T18:34:16","modified_gmt":"2020-03-04T23:34:16","slug":"boc-cuts-policy-rates-50bp-prime-follows","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=40387","title":{"rendered":"BoC Cuts Policy Rates 50bp; Prime Follows"},"content":{"rendered":"

The Bank of Canada has announced<\/a>:<\/p>\n

The Bank of Canada today lowered its target for the overnight rate by 50 basis points to 1 \u00bc percent. The Bank Rate is correspondingly 1 \u00bd percent and the deposit rate is 1 percent.<\/p>\n

While Canada\u2019s 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.<\/p>\n

Before the outbreak, the global economy was showing signs of stabilizing, as the Bank had projected in its January Monetary Policy Report (MPR). 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. Global markets are reacting to the spread of the virus by repricing risk across a broad set of assets, making financial conditions less accommodative. It is likely that as the virus spreads, business and consumer confidence will deteriorate, further depressing activity.<\/p>\n

In Canada, GDP growth slowed to 0.3 percent during the fourth quarter of 2019, in line with the Bank\u2019s forecast, although its composition was different. Consumption was stronger than expected, supported by healthy labour income growth. Residential investment continued to grow, albeit at a more moderate pace than earlier in the year. Meanwhile, both business investment and exports weakened.<\/p>\n

It is becoming clear that the first quarter of 2020 will be weaker than the Bank had expected. The drop in Canada\u2019s terms of trade, if sustained, will weigh on income growth. Meanwhile, business investment does not appear to be recovering as was expected following positive trade policy developments. In addition, rail line blockades, strikes by Ontario teachers, and winter storms in some regions are dampening economic activity in the first quarter.<\/p>\n

CPI inflation in January was stronger than expected, due to temporary factors. Core measures of inflation all remain around 2 percent, consistent with an economy that has been operating close to potential.<\/p>\n

In light of all these developments, the outlook is clearly weaker now than it was in January. As the situation evolves, Governing Council stands ready to adjust monetary policy further if required to support economic growth and keep inflation on target. While markets continue to function well, the Bank will continue to ensure that the Canadian financial system has sufficient liquidity.<\/p>\n

The Bank continues to closely monitor economic and financial conditions, in coordination with other G7 central banks and fiscal authorities.<\/p><\/blockquote>\n

As usual there are no details of how the voting went or any capsule description of the rationale for such dissent, as is routinely provided by professionally managed central banks such as the US Federal Reserve. It’s a pity that members of the grandiosely named Governing Council are so insecure!<\/p>\n

The Big Banks have followed with their prime rates – at least, according to the two announcements made public as of initial publication of this post. Sadly, we do not know what has been done with the banks’ top secret internal primes<\/a> or the spreads to Prime that the average customer might see on his renewal notice.<\/p>\n

Details are:<\/p>\n