Bank of Canada cuts key interest rate half-percentage point to 0.25 per cent

The Bank of Canada cut its key interest rate another half-percentage point to 0.25 per cent – matching its all-time low – and took its first steps into quantitative easing Friday, in response to the COVID-19 crisis.

In addition to the rate cut – its second half-point emergency cut this month – the bank also announced two new programs, headlined by a minimum $5-billion-per-week of market purchases of Government of Canada bonds, “to address strains in the Government of Canada debt market and to enhance the effectiveness of all other actions taken so far.” The move appears to mark the central bank’s first-ever foray into what is known in monetary policy as quantitative easing.

“The bank’s balance sheet will expand as a result of these purchases,” it said.

The other program is a new Commercial Paper Purchase Program, “to alleviate strains in short-term funding markets and thereby preserve a key source of funding for businesses.”

“The spread of COVID-19 is having serious consequences for Canadians and for the economy, as is the abrupt decline in world oil prices,” the central bank said in a news release Friday morning.

“The intent of our decision today is to support the financial system in its central role of providing credit in the economy, and to lay the foundation for the economy’s return to normalcy,” it said.

The bank said the “decisive fiscal policy action” by the federal government has provided important support to struggling businesses and individuals and will “minimize any permanent damage to the structure of the economy.” It added that “the bank is playing an important complementary role in this effort.” The lowering of rates, it said, “cushions the impacts of the shocks by easing the cost of borrowing.”