Bank of Canada holds rates after record economic plunge

OTTAWA, Canada – Canada’s central bank held its key lending rate at a record low of 0.25% on Wednesday, April 15, as the economy tanked due to travel restrictions and temporary business closures to fight the coronavirus.

The decision comes after 3 cuts totaling 150 basis points over the past 3 weeks to try to boost growth.

In a statement, the Bank of Canada forecast an eventual “protracted and uneven” global recovery following “a sudden and deep contraction” caused by containment efforts.

The central bank said economic activity decreased by 1% to 3% in the first 3 months of the year and was forecast to drop 15% to 30% in the 2nd quarter, when inflation was expected to drop to near zero.

It noted an “unprecedented drop in employment” in March with more than one million jobs lost across Canada, and many more workers having reported shorter hours. 

By early April some 6 million Canadians had applied for government assistance, which Prime Minister Justin Trudeau on Wednesday expanded to include seasonal workers and artists.

“You probably need help, and making ends meet,” he said. “No matter who you are or where you live. We’re in your corner.”

The announcement came as the COVID-19 death toll in Canada topped 1,000, with more than 28,000 confirmed cases.

Deep into bank ‘toolkit’

To support struggling credit markets and ease pressure on Canadian borrowers, the central bank also said it would purchase tens of billions in bonds.

“Unable to lift growth during a public health lockdown, the Bank of Canada is justifiably reaching deeper into its tool kit to keep the economy’s pieces in place so that they can be reassembled when the worst of the viral hit has past,” commented CIBC analyst Avery Shenfeld.

According to Statistics Canada preliminary data, Canada’s gross domestic product (GDP) plunged 9% in March, dragging down 1st quarter growth to -2.6%.

The estimates marked the biggest one-month GDP drop on record (since 1961), but beat analyst forecasts as low as -11.7% for the quarter.

On Tuesday, April 14, the International Monetary Fund predicted Canada’s economy would contract -6.2% this year, before rebounding 4.2% in 2021.

“Economic disruptions have been both deep and widespread in the month of March,” Statistics Canada said in a statement.

It said that among the hardest hit by social distancing measures and government restrictions were the travel and tourism sectors, including hotels and restaurants.

Retail (other than food), entertainment, and sporting events, as well as movie theaters also posted major declines.

But it’s not all doom and gloom, with some sectors actually posting gains in March. Health, food distribution, online retailing, and streaming, for example, saw upticks.

Despite a collapse in oil prices and lower investment in the energy sector, early indications also showed that oil and gas extraction and pipeline transportation “had not yet been substantially impacted” as storage facilities were still being filled. – Rappler.com