Bank of Canada likely to cut rates amid virus-driven economic headwinds

The Bank of Canada is expected to ease interest rates for the first time in almost five years today, amid

bank of canada

Photo: The Canadian Press/Sean Kilpatrick

The Bank of Canada is expected to ease interest rates for the first time in almost five years today, amid mounting concerns over the global impact of the coronavirus spread.

If the central bank slashes its 1.75% rate today, it would be the first G7 country to cut rates since the epidemic started in January. A slowdown in the global flow of trade in Canada due to travel restrictions and consumer caution would have a palpable economic impact on Canada, a net exporter.

Today’s rate cut comes as central banks around the world, including the US Federal Reserve, are trying to reassure markets that they will protect their economies from the economic impact of the virus through possible rate cuts.

As long as uncertainty persists over the spread of the virus and investors continue to perceive national and international government containment efforts as ineffective, monetary policy will at best only delay a global economic downturn. In the case of Canada—a country already suffering from low output and a potential decline in the labour market since the final quarter of last year—in the medium to long-term, rate cuts could exasperate existing economic malaise.

Wake up smarter with an assessment of the stories that will make headlines in the next 24 hours. Download The Daily Brief.