March 26th, 2020

How the Bank of Canada is Easing the Economic Impact of the Pandemic on Canadians

UPDATE (March 27, 2020): This post was originally published on March 26, 2020 and updated on March 27, 2020 as Bank of Canada lowered overnight rate for the third time in March to 0.25%.

Humanity is facing a unique situation with the COVID-19 pandemic and central banks around the world are reacting differently. The Bank of Canada has announced numerous measures to limit the economic and financial impact in an attempt to reassure Canadians.

During this crisis, the central bank has been focused on stabilizing the economy by ensuring affordable credit continues to flow freely to individuals and businesses. It is imperative that Canadians have the means to pay their bills and keep their businesses afloat in a dramatic economic slowdown as the one the country is currently facing.

The Bank of Canada has acted by easing interest rates three times in the month of March. First, lowering the overnight rate by 50 basis points to 1.25% on March 4, 2020, then by 50 basis points on March 13, 2020 to 0.75% and again on March 27, 2020 by 50 basis points to 0.25%. These measures were taken to stimulate economic activity, lower borrowing costs and stabilize inflation.

The efficient operations of the financial markets is key to a healthy economy and is especially important in times of market turmoil. In an effort to inject liquidity into the markets, the central bank expanded its government bond buyback program guaranteeing that bonds could continue to be bought or sold. Another program the Bank of Canada introduced to keep credit available is the purchasing of mortgage bonds from financial institutions. This action provides financial institutions with the means to renew mortgages in these difficult times.

To keep financial institutions well funded in order for them to maintain their lending practices, the central bank has loosened their lending rules for banks. This includes lengthening the terms of loans and expanding the acceptable collateral used to lend them money.   Finally, the Bank implemented other actions to facilitate provincial access to funds and ease financing for small and medium size businesses.