Mounting cases of the novel coronavirus and ensuing unrest through the economy has upped the odds the Bank of Canada will cut rates this week and maybe more drastically than originally forecasted, economists say.
The central bankB次元官网网址檚 announcement on its trend-setting interest rate lands Wednesday morning, and just days ago forecasters expected a cut of a quarter of a percentage point.
But on the eve of the announcement, the U.S. Federal Reserve swung first, cutting its key rate by half a percentage point after G7 central banks and finance ministers promised to B次元官网网址渦se all appropriate policy toolsB次元官网网址� to help stem financial concerns arising from the outbreak.
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Economists say the move may lead the Bank of Canada to issue a similar cut in the first of what could be multiple reductions to the central bankB次元官网网址檚 key interest rate target, which stands at 1.75 per cent.
In January, governor Stephen Poloz said the central bank could cut rates if the data supported it, or as insurance against a possible shock to the economy.
B次元官网网址淣ow with financial markets getting quite concerned that this isnB次元官网网址檛 just a mild outbreak that will slow economic growth but might have more dire consequences, we think the Bank of Canada, taking that on board, theyB次元官网网址檙e likely to want to lower the policy rate,B次元官网网址� Royal Bank of Canada deputy chief economist Dawn Desjardins said in an interview.
She added that such a move would really ensure that Canadian households and companies B次元官网网址渁re more confident that there are policies being implemented to mitigate some of the downside risk.B次元官网网址�
The virus has already dampened OECD expectations for economic growth this year. In a report released Monday, the organization made of some three dozen wealthy economies, lowered its year-over-year growth for Canada by 0.3 per cent to 1.3 per cent.
TD Economics chief economist Beata Caranci and senior economist James Orlando wrote in a report on Tuesday that the cards are stacked against the central bank holding rates, despite concerns that it may stoke the fires of household debt.
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B次元官网网址淓ven without an outbreak within a large urban centre, economic activity will be whittled away through more cautious behaviour to travel and attend activities,B次元官网网址� the report said. The bankB次元官网网址檚 B次元官网网址漡rowth-at-risk framework argues that the next step should be a cut in the policy rate.B次元官网网址�
ScotiabankB次元官网网址檚 expectation is for a 0.25 per cent cut on Wednesday, with a strong risk of a 0.5 per cent cut. Deputy chief economist Brett House said the Bank of Canada could add to underlying risk factors and possibly compromise growth if it didnB次元官网网址檛 shadow the move out of the United States.
B次元官网网址淭here is also a confidence effect by showing that authorities are acting,B次元官网网址� House said in an interview.
A rate cut may not be enough to dampen economic shocks if people avoid spending at brick-and-mortar operations, pointing to a need for government stimulus to prod consumer spending.
A spokeswoman for Finance Minister Bill Morneau said the government was ready to B次元官网网址渢ake action as necessaryB次元官网网址� to support the economy. Maeva Proteau added the governmentB次元官网网址檚 fiscal position gives it B次元官网网址渢he necessary leverage to respond to potential challenges if needed.B次元官网网址�
The G7 statement released after Tuesday morningB次元官网网址檚 meeting didnB次元官网网址檛 propose any specific or immediate actions governments and central banks may take. Speaking in Halifax, Prime Minister Justin Trudeau said his government will B次元官网网址渓ook for ways to minimize that impactB次元官网网址� on Canadian businesses B次元官网网址渁nd perhaps give help where help is needed.B次元官网网址�
Jordan Press, The Canadian Press
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