Bank of Canada opening statement after cutting rates

Poloz March 27 2020
  • Intent of our decision is to support financial system and to lay foundation for return to normalcy
  • Buying government bonds will help to relieve strains in the fixed income market
  • Governing council stands ready to take further action as necessary


  • Rates below zero, down to -0.50% are in our toolkit. But experiences more recently have made us realize that side effects are 'pretty significant'
  • It would be 'non-sensible' to go below zero.
  • Says this is likely the lower bound
  • Things we have done have improved market function but there continue to be strains
  • Commercial paper market is effectively frozen
  • Timing of move today was 'effectively dictated' by strains in markets
  • Staff is working hard on a new outlook for April 15 meeting but it's very tough
  • Most of our focus today is on market function
  • QE is normally aimed at moving the yield curve but we're trying to improve the functioning of the market
  • I can very confidently say there's nothing about the economy that we know that they don't know
  • Wilkins: Risky spreads have widened quiet a lot but also in CMBs, which are gov't guaranteed. It reflects less liquidity
  • Wilkins: Bid/ask spreads in very core markets like gov't of Canada bonds have gotten much wider
  • There was a disconnect between overnight rate and short-term rates so it made sense to cut now
  • Canadian dollar is important shock-absorbing factor, it's impacted by commodity prices
  • One of the first effects was oil, so Canada has two shocks to deal with

Full text of the opening statement:

Good morning, and thank you for joining Senior Deputy Governor Wilkins and me to discuss today's interest rate decision. Before turning to your questions, let me briefly summarize today's announcements.

First, we have lowered our target for the overnight rate by 50 basis points to ¼ percent. This unscheduled rate decision brings the policy rate to its effective lower bound, to provide support to the Canadian financial system and to the economy during the COVID-19 pandemic.

The government has announced decisive fiscal actions to defend Canadians and the economy from the damaging effects of COVID-19. These actions are designed to support individuals and businesses through this very difficult time, and to minimize any permanent damage to the structure of the economy.

Our monetary policy is playing an important supporting role. Low interest rates help to cushion the shock by easing the cost of borrowing. We are also working to keep the financial system functioning, helping make sure credit is available to people and companies. The intent of our decision today is two-fold: to immediately support the financial system so it keeps on providing credit, and, over the longer term, to lay the foundation for the economy's return to normalcy.

We are conducting a series of market operations to help ensure that credit is available and that markets continue to function. We've announced two new ones today. First, the Commercial Paper Purchase Program will help to restore a key source of short-term funding for businesses. Second, the Bank will begin acquiring Government of Canada securities in the secondary market. This will help address strains in the Government of Canada debt market and to enhance the effectiveness of all other actions taken so far. We will keep this program going until it's clear the economic recovery is well underway.

The Bank is closely monitoring economic and financial conditions, in coordination with other G7 central banks and fiscal authorities. We will update our outlook in mid-April. As the situation evolves, Governing Council stands ready to take further action as required to support the Canadian economy and its financial system and to keep inflation on target.

With that, Senior Deputy Governor Wilkins and I are happy to take your questions.