#BankOfCanada; #EmergencyInterestRateCut; #COVID19Pandemic; #LiquidityInEconomy
Ottawa, Mar 26 (Canadian-Media): An announcement was made in a press release Friday morning by the central bank that Bank of Canada has made a second unscheduled cut to its benchmark interest rate, lowering it to 0.25 percent amid the COVID-19 crisis, media reports said.
Bank of Canada Image credit: Wikipedia
COVID-19 pandemic outbreak crisis has caused the bank to to deviate from its normal six-weekly schedule of setting its rate by making unscheduled cuts to its benchmark rate, half a percentage point two weeks ago, and another half-point today.
Prior to Friday's cut, Canada had the highest central bank rate in the developed world at 0.75 percent.
But cutting its rate, the bank facilitates lending cheaper, to encourage people to spend, borrow and invest to help the economy.
Besides rate change to help out the economy, the central bank also announced the creation of two new programs to ensure the accessibility of money to people and businesses in need.
Through the first program, called the Commercial Paper Purchase Program, central bank would take on a type of debt known as "commercial paper" from companies, to meet their short-term financing needs.
The second program will enable the central bank to buy up Canadian government debt in the form of bonds, to the tune of $5 billion a week.
Both the programs would ensure the liquidity in the economy making sure that there is enough available cash in the system to be accessed by credit-worthy borrowers, and alowing banks to lend it out to anyone that needs it.
"It's not creating money in the sense of your textbook," governor Stephen Poloz said at a press conference following the bank's decision.
"You're creating liquidity because people need it to feel secure or confident that everything is going to be OK."
"The economy will need these kinds of supports in order to ensure a quick resumption of activity so we think its important to have it in place now," Poloz said.