13 Mar Interest rates and COVID-19
One of the surprising news this week was the just announced rate cut by the Bank of Canada. Since the start of the month, the rate has been cut twice. This time around the central bank’s benchmark interest rate was cut by 50 basis points to 0.75 per cent. The unexpected rate cut comes as a way to counteract the impact of the coronavirus.
What is different about this announcement?
Normally, the bank meets every six weeks to set its interest rate, and only takes action outside of those time frames when the situation is one of concern. This is the case. The central bank already had cut its rate to 1.25 per cent at a previously scheduled meeting on March 4 due to the impact of the coronavirus. That’s how serious the policy-makers in Canada are taking the news about COVID-19, which have had a negative impact on Canada’s economy.
What does this announcement represent?
The rate from the Bank of Canada impacts the rates that Canadian savers and borrowers get for things like savings and mortgages. The Bank raises its rate when it wants to cool down an economy that is being hit with high inflation. On the other hand, it cuts it when it wants to encourage people to borrow, to spend or to invest. The Royal Bank of Canada believes the situation with the coronavirus may cause a recession in Canada later this year.