Yesterday on March 4 another quick action of the next central bank took place. We are talking about the decision of the Bank of Canada, which lowered the main interest rate by 0.5 percentage points to 1.25 percent. This is the lowest rate level in Canada since June 2018.
For the last time, the Bank of Canada made such a significant move in March 2009, and now it has followed in the footsteps of the US Federal Reserve. We would like to point out that the Fed cut the federal fund rate by 0.5 percentage points on Tuesday, March 3. A statement by the BoC says that the outbreak is a serious negative shock to the economy. Consequently, the first quarter of 2020 will be weaker than previously expected. However, this is not only the result of a coronavirus but also of strikes, blockages of railway lines or snowstorms. Finally, the BoC can further adjust its monetary policy if needed and stays in touch with representatives of the G7 countries. Following the decision of the Bank of Canada, the Canadian dollar seemed to be weakening rapidly to the other major world currencies.
Meanwhile, in Poland, the Monetary Policy Council decided to leave interest rates unchanged. The economic situation of Poland is much better than in the other countries, and thus even with the economic slowdown, GDP growth will remain satisfactory – which might be concluded based on the MPC opinion. The zloty after this decision remained stable despite the fact that the interest rate market expected a more dovish stance.
However, the next central banks that could cut interest rates are the European Central Bank and the Bank of England. According to the money market, the ECB may cut interest rates by 10 basis points next week. In turn, according to Goldman Sachs, the Bank of England will cut the main interest rate by 0.5 percentage points on March 26 to 0.25 percent According to GS, an outbreak may bring the country closer to recession. However, according to Andrew Bailey, who will be Governor of BoE from March 16, the Bank may be waiting for more evidence regarding the impact of the virus on the economy, and action should be taken in a timely manner.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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