The Bank of Canada will not hesitate to cut its overnight rate again if economic conditions, driven by COVID-19, deteriorate further, said Bank of Canada governor Stephen Poloz at the Women in Capital Markets Symposium on March 5.
The Bank cut the rate last week by 50 basis points, surprising some market watchers.
“Not surprisingly, the threat to the global economy of COVID-19 — the coronavirus — played a central role in our deliberations and we are coordinating actively with other G7 central banks and fiscal authorities,” said Poloz. “People are rightfully concerned about the situation, given the human toll the virus is taking and the tragic consequences for those affected.”
Economic risk factors are heightened by the uncertainty created by COVID-19, said Poloz.
“A lot has happened in the past six weeks. In particular, the global economy will, at the very least, be significantly disrupted by COVID-19 in the first half of the year,” he said. “It is possible that the global economy will snap back quickly after health professionals have managed the situation and conditions have returned to normal.
“However, the outbreak and its effects could be more persistent. Consumer and business confidence could be set back for a longer period of time, causing economic growth to slow more persistently. This could include longer-term layoffs, for example. At this point, we simply do not know.”
Monetary policy adjustments will obviously have no effect on COVID-19, but can buffer consumer and business confidence, said Poloz.
“This contribution can be especially powerful when the shock is global and the response is coordinated,” he said. “As the COVID-19 situation evolves, Governing Council stands ready to adjust monetary policy further if required to support economic growth and keep inflation on target.”
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