Canada cuts rate 3rd time in March and to buy bonds

    Canada’s central bank cut its benchmark interest rate for the third time in March, launched a program to purchase commercial paper to ease strains in short-term funding markets and will also begin buying government bonds in the secondary market.
    The Bank of Canada (BOC) cut its target for the overnight rate by another 50 basis points to 0.25 percent and has now cut it by 150 basis points following a first 50 points cut on March 4 and then a second 50 points cut on March 13.
     ”This unscheduled rate decision brings the policy rate to its effective lower bound and is intended to provide support to the Canadian financial system and the economy during the COVID-10 pandemic,” BOC said.
     Central banks worldwide have slashed their policy rates 99 times since the outbreak of the coronavirus began to impact financial markets in mid-January, many at emergency policy meetings.
    But BOC is the first central bank to cut its rate three times in less than a month.
    The latest cut follows another emergency policy meeting by BOC as central banks worldwide have now cut rates at 53 extraordinary meetings since March 3 when the U.S. Federal Reserve kicked off this month’s rapid pace of monetary easing worldwide.
     ”The spread of COVID-19 is having serious consequences for Canadians and for the economy, as is the abrupt decline in world oil prices,” BOC said, adding its rate cuts, along with fiscal action, are aimed at supporting individuals and businesses, and minimizing any permanent damage to the structure of the country’s economy.
     To promote the availability of credit, BOC has already expanded its repurchase facilities along with other measures, and is now launching two programs.
     A Commercial Paper Purchase Program (CPPP) is aimed at easing strains in the short-term funding markets and thus preserve a source of funding for businesses.
     To ease strains in the market for Canadian government debt, BOC will begin buying government securities in the secondary market, with purchases beginning with a minimum of $5 billion per week, across the yield curve.
     The program will be adjusted as conditions warrant, “but will continue until the economic recovery is well underway,” leading to a larger balance sheet, BOC said.

    The Bank of Canada issued the following press release: