A coordinated monetary easing from central banks would have the advantage of boosting confidence and easing market volatility. The absence of specific actions in this morning’s G7 statement implies central banks and finance ministers will act individually for now. Global coordinated and forceful actions would be taken if a broader virus contagion leads to significant negative economic disruptions and heightened financial stress.
For instance, the OECD pegs global real GDP growth in 2020 to a disastrous 1.4% in its illustrative severe coronavirus scenario released yesterday.
Under the OECD’s base case coronavirus scenario, global economic growth falls to a tepid pace of 2.4% this year, down from its previous 2.9% projection and significantly below the Bank of Canada's January Monetary Policy Report projection of 3.1%.
Furthermore, the Federal Reserve could not wait until its mid-March meeting and decided to reduce its policy rate by 50bps this morning, while the Reserve Bank of Australia (RBA) cut its policy rate last evening to 0.50% from 0.75%. In its statement, a reliable guideline for tomorrow’s BoC statement, the RBA says the 25bps cut to the cash rate is a response to the global coronavirus outbreak. The RBA also mentions it “is prepared to ease monetary policy further to support the Australian economy.”
In light of the rapid changing events, we now expect the BoC to ease its policy rate later today or tomorrow morning at the latest. In order to match the Fed’s move, a 50bps cut to the overnight rate target appears more likely than a 25bps reduction. The BoC will also be willing to announce additional support to the Canadian economy in the coming weeks, at or before April 15, the next fixed action date depending on how Covid19 and financial market conditions evolve.