Both Macklem and his predecessor Stephen Poloz have said they see 0.25% as the floor for rates. If negative rates “were to get priced in and the BoC didn’t meet the market expectation, then the BoC would be disappointing markets,” said Greg Anderson, global head of FX strategy at BMO Capital Markets. Some economists argue the experience of Europe and Japan shows that negative rates are not effective at boosting economic growth. Money market data shows investors have moved away from pricing in additional easing by the Bank of Canada and instead see a steady profile for rates this year and next, with about a 50% chance of a rate hike in 2022.

The Federal Reserve, which has been pressured by U.S. President Donald Trump to cut rates below zero, is not expected by money markets to hike until at least 2023. REUTERS/Chris Wattie/File Photo “So central banks will have less room to maneuver.” Canada’s overall inflation rate turned negative in April and Poloz said: “If it’s going to be underperforming, then we’re going to be easier for longer. Reporting by Kelsey Johnson; Additional reporting by David Ljunggren; Editing by Peter CooneyFILE PHOTO: Bank of Canada Governor Stephen Poloz attends a luncheon for Women in Capital Markets (WCM) in Toronto, Ontario, Canada March 5, 2020. Canada is experiencing an unprecedented recession as a result of the viral pandemic. According to the Bank of Canada, "Governing Council continues to judge that the policy interest rate will need to rise over time into a neutral range to achieve the inflation target." TORONTO (Reuters) - Investors, looking past the COVID-19 pandemic, are betting that the Bank of Canada could be among the first major central banks to hike interest rates, signaling new governor Tiff Macklem’s success so far convincing the market not to expect negative rates. So the real question right now is not whether the rate will change in the near-term, but how long the Bank of Canada will hold the rate at what is effectively zero. After the Bank of Canada slashed interest rates in March to a record low of 0.25%, speculation mounted that it would join central banks in Japan and Europe in setting rates below zero. Just last month, the Canadian dollar slumped as some investors mistook a comment by Macklem, on the day he was named the governor, as putting negative rates on the table. Production should return very rapidly once shutdowns linked to the outbreak were ended, he said. With the Bank of Canada dropping its overnight rate by a full percentage point this month in response to the COVID-19 pandemic, it would seem to be a great time to shop for a new mortgage.. Not so, according to mortgage experts. Asked about a possible second wave of the coronavirus, Poloz said the damage could be similar to that outlined in the bank’s worst-case scenario, where second-quarter gross domestic product plunges by 30% from last year’s fourth quarter. BOCWATCH.

“The Bank of Canada has done a better job than some other central banks of quashing speculation around further rate cuts,” said Andrew Kelvin, chief Canada strategist at TD Securities. Bank of Canada Governor Stephen Poloz said on Thursday that interest rates were probably going to stay low and that the damage done by the coronavirus outbreak might not be as bad as some fear.

OTTAWA (Reuters) - Bank of Canada Governor Stephen Poloz said on Thursday that interest rates were probably going to stay low and that the damage done by the coronavirus outbreak might not be as bad as some fear. Alternatives for the Bank of Canada if it needs to add stimulus include adding to the size of its bond-buying program.

In fact, advertised interest rates for new mortgage applications have been climbing significantly over the past few days. The bank - which targets 2% inflation - has slashed its key overnight interest rate three times to a record-low 0.25% since the crisis started and markets do not expect another move before next year. That could have headed off some potential headaches. This policy implies that once Canada emerges from a recession, rates will begin to rise. REUTERS/Chris Helgren/File Photo Markets are certain the Bank of Canada will be forced to cut interest rates to near zero in coming weeks, and even days, to support an economy tumbling into recession. After the Bank of Canada slashed interest rates in March to a record low of 0.25%, speculation mounted that it would join central banks in Japan and Europe in setting rates below zero. Sub-zero rates lower borrowing costs and could help exporters if the Canadian dollar were to decline, but they also hurt lending margins for banks and penalize savers.

That’s the essence of the (2%) target and that’s why it’s there.” Poloz said he felt some of the talk about the damage that could be done by the coronavirus outbreak was “a little too dire.” Growth was plunging because the economy had been shut down, not because of behavioral factors, he said. It “would likely trigger an equity decline and CAD rally at a really bad moment.” Money markets could also be signaling confidence that adequate fiscal and monetary policy stimulus has been put in place to help Canada’s economy recover, said TD’s Kelvin, adding that the BoC will not want to encourage excessive borrowing from already heavily-indebted Canadians. The Bank of Canada cut its trend-setting interest rate by half a percentage point to 1.25 per cent down from 1.75 per cent on Wednesday in an effort … Poloz, who is retiring next month, said he felt Canada was still on track to meet the best-case scenario for recovery that the central bank released in April, where growth shrinks by 15% in the second quarter compared with the fourth quarter of 2019 before the coronavirus pandemic. “I wouldn’t be surprised if the Bank of Canada was a little bit more eager (than other central banks) to move out of emergency rates when they are able to,” Kelvin said. And most of the economists on our panel think it will hold for a very long time. “If you think that the economy did hit bottom in April, a rate hike in two years ... is a plausible outcome I think,” Kelvin said. I don’t know how low really but they’re just not going to be like where they were 20 years ago or 30 years ago,” Poloz said in remarks to reporters ahead of his June 3 retirement. “We are in an era where interest rates are probably going to stay low, for demographic reasons and economic growth reasons.

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