The COVID-19 outbreak presents a unique threat to Canada’s economy. The last major crisis, in 2008-09, had the financial system at its core and responded well to injections of liquidity and support for credit markets. The coronavirus is not like that. It has stopped the economy cold. People are staying home. Many service industries have shut their doors. Output and employment are plummeting.
Canadian governments have responded. The Bank of Canada has slashed the overnight rate and is supporting credit markets. The federal government is supporting specific sectors through its various lending agencies. These are important measures and the experience of 2008-09 made them faster and more effective.
In 2008-09, however, people…
Actions and promises from policy makers last week gave Canadians badly needed signs that elected leaders and officials are working to limit the impact of COVID-19 on their health and their economy.
An emergency interest-rate cut from the Bank of Canada, and its new facility to support short-term credit, will help. Relaxed capital standards to facilitate bank lending from the Superintendent of Financial Institutions are also welcome. The federal government has announced some targeted spending, and plans to make credit available through Crown lenders. Finance Minister Bill Morneau has promised more fiscal measures shortly.
Helpful though these moves and announcements are, the economic repercussions from COVID-19 threaten to…
The Bank of Canada was right to cut interest rates last week but it may have been wiser to reduce them by only 25 basis points rather than 50 and thus keep more firepower in reserve in case it’s needed in coming weeks.
The Bank likely was leaning heavily towards an interest rate cut even before the Fed’s unscheduled and surprising 50 basis point federal funds rate cut last Tuesday. That might have given the Bank the final nudge to follow suit in its regularly scheduled rate decision a day later. Given the complexity of COVID-19, a cut of at least 25 basis points was likely the right call. The key was to move swiftly and decisively, which the Bank did. The only uncertainty was whether it would take as drastic a step as the Fed. In…
