BUSINESS
03/27/2020 10:14 EDT | Updated 03/27/2020 17:22 EDT

Bank Of Canada Drops Interest Rates, Says This Is The Lowest They Can Go

At 0.25 per cent, we are at "the effective lower bound," the BoC says.

OTTAWA ― The Bank of Canada cut its key interest target by half a percentage point to 0.25 per cent in an unscheduled rate announcement Friday.

The central bank said its decision to lower rates is aimed at cushioning the economic shocks from COVID-19 and a sharp drop in oil prices by easing the cost of borrowing.

It added that providing credit in the economy for businesses that need it should help lay the foundation for the economy’s return to normalcy.

The interest rate cut takes the key rate to what the central bank referred to as “its effective lower bound,” or the lowest level that rates can be set. 

Blair Gable / Reuters
Bank of Canada Governor Stephen Poloz foreground, next to Senior Deputy Governor Carolyn Wilkins at a news conference in Ottawa, Jan. 22, 2020.

The unexpected decision marks the second time this month the bank has made an unscheduled cut to its trend-setting interest rate and the third cut overall from the start of March when the rate was at 1.75 per cent.

Bank governor Stephen Poloz said the goal of the decision Friday is to restore market functioning and help create a bridge for businesses and consumers over the economic shutdown linked to curbing the spread of COVID-19.

He also downplayed the idea of sending interest rates into negative territory, saying they’re not sensible at this stage.

The central bank also launched two new programs.

One will aim to alleviate strains in short-term funding markets, while the other will see the central bank begin acquiring federal government securities in the secondary market with a minimum of $5 billion per week.

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