The Bank of Canada is ramping up its bond buying program as it warns of "dire consequences" for the economy due to the shutdown caused by the coronavirus pandemic.
Canada’s central bank announced tens of billions of dollars in additional asset-buying on Wednesday as it held its benchmark interest rate at 0.25%. The Bank of Canada said credit markets remain "strained," and so it’s bulking up its asset-purchase programs, including plans to buy up to $50 billion in provincial bonds and $10 billion of investment-grade corporate bonds in the secondary market.
The COC also declined to provide detailed forecasts for the coming year as it normally does when releasing its quarterly "Monetary Policy Report." Instead, the central bank presented scenarios due to uncertainty surrounding the pandemic.
Under the “"ess severe scenario," the Bank of Canada said the country’s economy will face a short-lived sharp decline in activity. Under the "more severe scenario", where coronavirus containment measures remain in place for a prolonged period of time, the bank warned that a "significant" number of businesses will close, and out-of-work Canadians could face "longer spells" of unemployment.
The Bank of Canada’s analysis of various scenarios indicates that Canada’s economy could contract as much as 30% in the second quarter compared to activity in the fourth quarter. The central bank has cut its key interest rate three times since the beginning of March in response to the coronavirus outbreak.
