BoC kept overnight rate at “effective lower bound” of 0.25% as widely expected. Bank Rate and deposit rates are held correspondingly at 0.50% and 0.25% respectively. The surprise is that it decided to scale back some market operations as financial conditions improved. Though, BoC maintains its commitment to continue large-scale asset purchase until economic recovery is “well underway”.
BoC noted that globally, coronavirus impact “appears to have peaked” even though uncertainty “remains high”. Financial conditions “have improved” and commodity prices “have risen” in recent weeks. Canadian economy appears to have “avoided the most severe scenario” -2.1% Q1 GDP contraction was in the middle of he monitoring rate. Q2 GDP could further decline -10-20%. Recovery is expected to resume in Q3.
On market operations, BoC decided to reduce the frequency of the term repo operations to once per week, and its program to purchase bankers’ acceptances to bi-weekly operations.