Monday Market Minute | Mar 23, 2020
The Bank of Canada cuts to the effective lower bound of 0.25% and launches quantitative easing for the first time in its history.
What Moved
On March 27, the Bank of Canada delivered its third emergency rate cut in three weeks, slashing the overnight rate by 50 basis points to 0.25% — the effective lower bound. For the first time in its history, the BoC announced a large-scale quantitative easing program, purchasing Government of Canada bonds and commercial paper to inject liquidity into seizing credit markets. CERB was officially announced, providing $2,000/month to displaced workers. The federal government's fiscal response was taking shape at unprecedented speed and scale.
Why It Matters
The move to 0.25% fundamentally altered the return calculus for private market investors. With risk-free rates near zero, the yield premium offered by private credit, MICs, and infrastructure became even more attractive on a relative basis — assuming the underlying assets survived the crisis. For borrowers in private credit portfolios, lower rates reduced debt service burdens. The combination of monetary and fiscal policy was explicitly designed to prevent a liquidity crisis from becoming a solvency crisis.
Signal to Watch
Watch mortgage deferral uptake rates. If deferrals stayed below 10% of outstanding mortgages, the mortgage system would likely absorb the shock without systemic distress.