Bank of Canada expected to lower interest rate

Bets are rolling in that the Bank of Canada will have to cut its benchmark interest rate on Wednesday because of the economic risks COVID-19 poses.

The U.S. Federal reserve jumped the gun today, by not waiting for its next policy meeting for a 50 basis point cut after a meeting of G7 finance ministers and central bankers.

Unlike the Fed, which has been steadily easing, the Bank of Canada has been reluctant to cut rates.

Today’s announcement along with the economic fallout of the outbreak — including a 30 per cent drop in the price of oil — is widely expected to force Governor Stephen Poloz’s hand.

Investors were betting on a 25 basis point cut. But after the U.S. central bank move, the odds of a 50 basis point cut are higher.

Avery Shenfeld, chief economist at CIBC Capital Markets, says he’s not surprised by the 50 basis point cut, but the Fed not waiting a couple of weeks for the next meeting got his attention.

“That rare move underscores the depths of their concern on where the economy is headed as U.S. cases emerge and the virus spreads in more export markets,” he said in a note.

“For the Bank of Canada, it’s now a no brainer that they too will be cutting rates this week, and while that won’t be an inter-meeting move, it certainly opens the door to the Bank of Canada delivering 50 basis points.”

Shenfeld expects another cut of 25 basis points in April.

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