MNI POLICY: BOC: Ready to Ease Again as Virus Risks Develop>

By Greg Quinn and Anahita Alinejad

     OTTAWA (MNI) - The Bank of Canada is ready to ease further after 

the biggest rate cut in a decade to curb economic damage from the 

coronavirus, and coordinated action could have a powerful impact, 

Governor Stephen Poloz said Thursday.  

     "Governing Council stands ready to adjust monetary policy further 

if required," Poloz said Thursday in the text of a speech he's giving in 

Toronto. "While markets continue to function well, the Bank will 

continue to ensure that the Canadian financial system has sufficient 

liquidity. And we continue to closely monitor economic and financial 

conditions, in close coordination with other G7 central banks and fiscal 

authorities." 

     "Monetary policy can contribute by buffering their effects on 

consumer and business confidence, thereby helping the economy bridge the 

situation. This contribution can be especially powerful when the shock 

is global and the response is coordinated," he said.

     The BOC on Wednesday cut its benchmark interest rate by 50bps to 

1.25% and gave the rare guidance of saying further action is possible. 

Policy makers will cut another 25bps at the next meeting April 15 

according to economists surveyed by MNI. Poloz said Thursday that global 

and Canadian growth will be weakened through the first half of 2020 by 

the virus outbreak. 

     "Risk management demands a prompt and sizable policy response to 

larger shocks to ensure that the economy remains well anchored. 

Governing Council agreed that the downside risks to the economy today 

are more than sufficient to outweigh our continuing concern about 

financial vulnerabilities," Poloz said. 

     The BOC skipped last year's wave of rate cuts citing resilient 

domestic spending and longer-term risks from a housing boom in Toronto 

and Vancouver.  

     There is evidence the economy stumbled before the virus outbreak. 

Canada's growth lagged 1% in the fourth quarter even after removing 

one-offs like strikes, Poloz said. GDP is set for weakness again in the 

first quarter of 2020 and perhaps the second, and this year's 10% drop 

in commodity prices will make the adjustment harder, he said. 

     "The global economy will, at the very least, be significantly 

disrupted by COVID-19 in the first half of the year," Poloz said. "It is 

possible that the global economy will snap back quickly after health 

professionals have managed the situation and conditions have returned to 

normal." 

     "However, the outbreak and its effects could be more persistent. 

Consumer and business confidence could be set back for a longer period 

of time, causing economic growth to slow more persistently. This could 

include longer-term layoffs, for example. At this point, we simply do 

not know." 

--MNI Ottawa Bureau, +1-613-314-9647, greg.quinn@marketnews.com

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