he Bank of Canada (BoC) lowered its overnight rate by 50 basis points to 1.25. Josh Nye, Senior Economist at RBC Economics, points out a rate cut seemed like a foregone conclusion, particularly after the Federal Reserve’s emergency 50 basis point cut on Tuesday, “but the size of the move was a closer call”. They think the Bank will cut again in April.
“Primarily in response to economic risks posed by the global coronavirus outbreak and the associated tightening in financial conditions and declines in commodity prices. Slower underlying GDP growth and yet more transitory disruptions to economic activity (rail blockades, teachers’ strikes and winter storms) also contributed to the decision to cut rates.”
“Markets were leaning toward a 50 bp cut—though it wasn’t fully priced in, as evidenced by a weaker Canadian dollar this morning—while we were expecting a more measured 25 bp cut followed by a similar move in April. With today’s statement leaving the door wide open to further easing, we still think the BoC is likely to cut in April in addition to today’s larger-than-expected move.”