Bank of Canada drops interest rates 0.5%

March 4, 2020 | Posted by: Harold Hagen

This morning, the Bank of Canada lowered its target for the overnight rate by 50 basis points to 1.25 percent from 1.75 percent. The change matched yesterday's surprise rate drop announcement by the US Fed, which had decreased its benchmark interest rate by half a percentage point as well.

 

This is the first change to the benchmark rate since October 2018, and most significant rate change since 2015. The Bank stated it remained open to further rate cuts, if necessary.

 

The rate drop is in response to Covid-19 fears, stating “the COVID-19 virus is a material negative shock to the Canadian and global outlooks”. Covid-19 “represents a significant health threat to people in a growing number of countries” including regions that have been affected by significant decreases in business activity, disruption of supply chains, dropping commodity prices and a depreciating Canadian dollar.

 

This change will lower the overall cost of borrowing for Canadians, and directly affect borrowers holding Variable and HELOC type financing. We anticipate Lending Institutions will announce a cut to Canada’s prime lending rate within the next few days. Stay tuned!

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