Wednesday January 20, 2021 - 10:26:09 GMT
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BoC preparing for some major Interest changes
The global pandemic has had a global critical effect on almost every single sector in the world. The COVID-19 set the new rules and regulations, which we have to obey in order to face a new reality, in which we all woke up one day. The world is moving in a different direction and while nobody expected anything like this to happen, here we are in the middle of the global pandemic and the social-economic crisis.
Some countries and businesses managed to overcome the period better than the others. This obviously very much depends on the skills and the opportunity of the country. The ones with the relatively stable economy managed to face the global pandemic better, though with a lot of loss still.
The developed countries, like Canada, have been struggling in many aspects, though are making some changes and amendments in order to create better beings and better circumstances for the citizens. Some things are impossible to handle, but the ones that are possible have to be handled in the best way.
The Canadian Dollar should slowly be depreciating relative the USD, which is only predicting the harder economic situation of the country. Canada is planning to implement several measures to ease the situation, which most likely will slow down the critical process.
The bottom line zero
Among the measures which have to be taken, in order to overcome the crisis and to maintain the more or less stable pos-pandemic economy, the government and the officials and planning to cut the interest rate closer to zero. This was the official announcement made by the Bank of Canada. The measure shall be implemented in order to tighten economic restrictions to contain the second wave of COVID-19 cases to offset optimism that activity will rebound later this year.
The critical situation has also been caused by the fact that the country and the official working places had to lay off the employees for the first time throughout this period. The lay off was due to the uncertainty in the forecasts and the uncertainty in the situation. While cutting interest rates to zero might ease the economic state of the citizens overall, sickening the local businesses shall definitely harm the overall economic state.
Even though online gambling is illegal in Canada, the rumors were spread that the country might actually overthink its laws and approaches in order to make at least somewhat profit for the economy. It was said that because of the unemployment rate constantly increasing and the lack of physical resources excessive for the employees and employers, the online industry shall be encouraged.
Canada is not the first country to reconsider its approach to the industry. Many other countries are keeping the activation of online gambling in mind. It should assist in overcoming the crisis by providing remote and physical jobs for unemployed people. The taxes generated from the online gambling companies can be an addition to the state budget, plus the possibility for remote working could have subsidized the economy.
So far no movement and melting of the ice in the direction of legalizing online gambling has been heard, though this topic is not moved from the table either. This website can provide you with more information regarding the online gambling industry and the possible profit it can deliver within this critical time for the country.
The Interest rates
While some specific measures such as online gambling legalization and interest rates are the main hope for the first aid kit to the economic crisis, Canada is trying hard to maintain the CAD at a stable point.
Interest rates were thought to have hit rock bottom in Canada after they have slashed 150 basis points last March to a record low of 0.25%, a level the Bank of Canada considered the effective lower bound. But in November, Governor Tiff Macklem said a lower floor could allow Canada's central bank to ease further if the economy weakens.
The final policy decision will be made next week by the Bank of Canada. So far, the institution has already ruled out the negative interest rate. Further easing would likely be a so-called "micro rate cut" of less than 25 basis points. That's an increment the central bank has not used since the target for the overnight rate became its main policy tool in February 1996.
Andrew Kelvin, who is the chief Canada strategist at TD Securities also commented on the interest rate possible changes. He said that people have their guard up, reflecting the cut risk. The three-month overnight index wrap rate has moved below the 0.2% level where the overnight rate has been setting. It has eased 4 basis points since November to trade at about 0.17%.
Unlike Kelvin, the Bank of Canada spokesperson declined to comment on the ongoing decision-making process. Similar to the BoC, some other smaller banks have also applied changes, generally moving in small increments. A rate cut could add stimulus by reinforcing already low borrowing costs and checking further gains for the Canadian dollar.
Adjusting the asset-purchase program and setting yield-curve targets are other easing options the BoC has flagged, seeing the risk of economic scarring if the recovery takes too long.
Economic activity is expected to pick up once lockdowns end and vaccinations become more widespread, but analysts say the potential for another rate cut should not be ignored.
Although there is still no final answer and no decision made, the Bank of Canada just mentioned the preparation to the start of the survival plan.
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