In an unscheduled meeting from earlier today, the Monetary Policy Committee (MPC) of the Bank of Canada decided to cut the Bank Rate and increase its asset-purchasing program to historic highs.
The interest rate in Canada has been reduced to near negative levels by 50 basis points to 0.25 per cent. The Bank also announced that it would be purchasing government treasuries and short-term debt at an unprecedented rate of 5 billion CAD every week.
These combined efforts are implemented due to the observed deterioration in the Canadian economic conditions, amidst surging unemployment and falling economic activity.
“This unscheduled rate decision brings the policy rate to its effective lower bound and is intended to provide support to the Canadian financial system and the economy during the COVID-19 pandemic. […] The Bank’s efforts have been primarily focused on ensuring the availability of credit by providing liquidity to help markets continue to function. To promote credit availability, the Bank has expanded its various term repo facilities.”
The Bank also announced two new mechanisms through which it will be able to provide short-term funding to the reeling markets by pumping even more liquidity in the economy.
Its Commercial Paper Purchase Program (CPPP) will be extending credit to affected businesses in the short term, in addition to commencing the purchasing of Canadian Government debt securities in the secondary market at the aforementioned rate of 5 billion CAD a week.
All of these efforts are the BOC’s response to the continually evolving COVID-19 situation, and they are intended to accommodate the struggling financial system in the country while the economy remains effectively shut down.
Meanwhile, the Canadian dollar continued its moderate strengthening against the greenback, despite the news for this increase in the aggregate money supply.
The USDCAD pair broke down below the 23.6 per cent Fibonacci retracement at 1.40976 yesterday, and the next major support level remains the 38.2 per cent Fibonacci at 1.37256.
USDCAD 4H Price Chart. Image source: Trendsharks ©, created with TradingView.com
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