BoC's Gravelle: 0.25% is lowest policy rate can go without causing problems to financial system

The Bank of Canada will be paying close attention to how the coronavirus pandemic affects growth and demand in key Canadian export markets, Deputy Governor Toni Gravelle said on Thursday.

Additional takeaways

"0.25% is as low as we think we can reduce rates without causing problems for the financial system."

"Clear signs that credit is flowing and the financial system are working well, which will be a key piece underlying the strength of the recovery."

"Despite positive signs uncertainties remain; a lot will depend on whether Canada is successful in managing risk of possible future waves of COVID-19, and pace that containment measures are lifted."

"Economic supply could recover faster than demand if businesses reopen quickly but consumers remain cautious."

"In lead up to July monetary policy report, it will be key to understand how the coronavirus pandemic has affected demand, employment and economy's capacity to produce goods and services."

"Central bank's balance sheet has grown from about C$120 billion in early March to over C$460 billion."

"Market liquidity has improved; bid-ask spreads and yield spreads in many markets have narrowed significantly."

"Large-scale asset purchases will continue until the economic recovery is underway."

"Bank is prepared to augment the scale of programs if needed to support market functioning."

Market reaction

The USD/CAD pair edged slightly lower and was last seen trading at 1.3485, losing 0.07% on the day.