Governor Poloz also reaffirmed that actions to-date are not the end of the line for monetary policy and said the bank is prepared to do whatever is needed for the financial system to continue to function.
The bank has reacted rapidly to the evolving crisis having reduced the policy rate by 100 bps since March 4 and announcing a myriad of actions. As far as additional policy measures, the bank has been clear that there are more policy levers that could be pulled in the toolkit. These include lowering the overnight rate to the lower bound of 0.25% and employing additional non-traditional measures. These measures include forward guidance – committing to keeping stimulus in place until certain conditions are met – and the outright purchases of government securities and corporate bonds. The BOC can also offer longer-term funding to banks linked to loans being given to certain sectors and while it is possible for Canada to enter into a negative interest rate regime, policymakers consider this to be a last resort. Today, the Governor said that what is important is that the programs can be scaled up or down as needed.
The fallout from the crisis has been widespread across all financial assets with equities down 32% from the February 20 peak and credit spreads blowing out. This means that banks have seen their funding costs rise exerting upward pressure on mortgage rates. This is creating challenges for households about to reset their mortgage rate or those with a variable rate mortgage. Last week, several programs were announced to help the flow of credit to consumers and business including the purchase of mortgages from lenders that will provide additional loanable funds to financial institutions. The Governor today said some of the programs set up last week were initiated and have already been effective in reducing mortgage spreads.
Outside the bank and government measures announced, the private sector is also working to help Canadian households manage through this period with Canada’s banks allowing customers to defer mortgage payments for up to six months if faced with disruptions associated with the crisis.
As Deputy Chief Economist, Dawn contributes to the macroeconomic and interest rate forecasts for Canada and the U.S. Before joining RBC, Dawn worked as a reporter for Bloomberg Financial News in Toronto covering the Canadian bond and currency markets. She also spent ten years as the Canadian bond market strategist for a major U.S. bank.
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