March 27, 2020 / 1:44 PM / 2 months ago

Bank of Canada slashes policy rate, to start purchase of government securities

TORONTO (Reuters) - Bank of Canada cut interest rate on Friday in an emergency move, dropping its benchmark rate by 50 basis points to 0.25% to support an economy hit hard by the outbreak of coronavirus. This is the third interest rate cut by the central bank this month.

BANK OF MONTREAL CHIEF ECONOMIST DOUGLAS PORTER

“Markets were fully expecting the Bank of Canada to cut its key rate by 50 basis points to the prior low of 0.25% at some point, but the Friday morning timing is yet another surprise.”

“But beyond that, the bigger news here is the Bank’s decision to take the full plunge into Quantitative Easing — it’s now official. It’s doubtful that this significantly adjusts the economic outlook, but it should help moderate some of the biggest swings in the government of Canada bonds market.”

“The size of the QE is open-ended for now, but at C$5 billion per week “until the recovery is well underway” suggests something above C$100 billion.”

MARK CHANDLER, HEAD OF CANADIAN FIXED INCOME AND CURRENCY STRATEGY AT RBC CAPITAL MARKETS

“It’s something we had expected they’d move before the next meeting, and we think 50 basis points is appropriate. We also looked to for them to establish quantitative easing, which they’ve done. They’re saying about C$5 billion a week; we’d thought C$200 billion over the course of a year, so it seems consistent with that as well.”

“As part of a third phase, they could expand to other securities, or they could cut rates as well to negative. Our base case is that they can avoid it but it depends on the extent of the downturn. We’re assuming about 20% annualized decline in GDP of Q2, and GDP annual decline of 2.5%.”

ANDREW KELVIN, SENIOR RATES STRATEGIST AT TD SECURITIES

“Better late than never. The rate cut was a foregone conclusion .. QE (quantitative easing) was sorely needed and we expect that we will see probably more QE announced within the next quarter. Probably adding CMBs (Canada Mortgage Bonds) to the mix.”

Reporting by Fergal Smith, Nichola Saminather and Jeff Lewis; Editing by Denny Thomas

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