Gold price muted as Bank of Canada follows Fed with 50-basis-point cut
(Kitco News) - Global central banks appear to be falling in line with the Federal Reserve as the Bank of Canada cuts interest rates by 50 basis points.
Wednesday, following its monetary policy meeting, the Bank of Canada dropped its overnight rate to 1.25%
“While Canada’s economy has been operating close to potential with inflation on target, the COVID-19 virus is a material negative shock to the Canadian and global outlooks, and monetary and fiscal authorities are responding,” the bank said in its monetary policy statement.
“Before the outbreak, the global economy was showing signs of stabilizing, as the Bank had projected in its January Monetary Policy Report (MPR). However, COVID-19 represents a significant health threat to people in a growing number of countries. In consequence, business activity in some regions has fallen sharply and supply chains have been disrupted. This has pulled down commodity prices and the Canadian dollar has depreciated,” the statement added.
The Canadian central bank noted that because of the virus the economic outlook is clearly weaker now than it was in January.
The price action in gold against the Canadian dollar has been muted in initial reaction to the BoC’s rate cut. Spot gold prices are up 0.37%, last trading at $2202.12 an ounce against the Canadian dollar.
Avery Shenfeld, senior economist at CIBC, said that the rate cut was in line with the bank’s expectations after the Federal Reserve’s move on Tuesday. He added that CIBC is expecting to see another cut in April.
“The Bank wisely concluded that whatever outlook they previously had for Canada had deteriorated meaningfully given the global slowing, the hit to commodity prices, and the inevitable hit to confidence domestically,” Shenfeld said. “A reasonable first step, with the Bank signaling that if things get worse, they are prepared to do more. Like the rest of us, they will be watching for news on both the virus and the economy, but it’s reasonable to assume a further 25 bp cut in April.”