Bank of Canada micro rate cut chances float amid virus restrictions

Financial markets peek on a higher probability of a near-to-zero interest rate cut to be imposed by the Bank of Canada as stiffing economic restrictions continue to overshadow hopes for a rebound in economic activity later this year.

After being trimmed by 150 basis points last March, posting its record-low of 0.25%, interest rates set by the Bank of Canada were expected to have hit zero level. In November, however, Governor Tiff Macklem said a lower floor could enable the central bank to slash interest rate further if the economy dwindles.

According to data released last Friday, Canadian employment had seen its lowest rate in eight months. Economists anticipate a lower yield to be reflected by the January report as inoculation started slowly and some provinces impose tighter lockdowns.

Set to release its policy decision next week, the BoC has already crossed out the chances of entering the negative territory. This means that the forthcoming rate cut will be a “micro rate cut” lower than 25 basis points. This measure is something the central bank has not used since the target for overnight rate was set as its primary policy tool in February 1996.