Central bank expands asset buying to provincial, corporate bonds

Conditions remain strained in the markets

The Bank of Canada unveiled another round of measures to inject even more liquidity into the country’s economy as it predicted the country’s downturn could be significantly worse than previously believed.

Asset purchases will now include provincial and corporate bonds, two markets where conditions remain strained, the central bank said in a statement Wednesday, as it held its policy rate unchanged at 0.25 per cent.

“These measures will work in combination to ease pressure on Canadian borrowers,” policy-makers led by Gov. Stephen Poloz said in a statement. “As containment restrictions are eased and economic activity resumes, fiscal and monetary policy actions will help underpin confidence and stimulate spending by consumers and businesses to restore growth.”

The central bank has already responded aggressively to blunt the effect of the pandemic on the Canadian economy, slashing interest rates to near zero and launching a range of emergency asset purchases totalling $200 billion in the past three weeks.

In a separate Monetary Policy Report released Wednesday, the central bank warned the country’s economic performance could be significantly worse than expected at the early stages of the coronavirus pandemic, while the timing of the recovery remains uncertain.

The economy could shrink by as much as 30 per cent in the second quarter in a prolonged lockdown scenario, compared to the end of 2019, and output will probably remain below pre-pandemic levels for some time, according to the report.

The bank will buy up to $50 billion of provincial debt in a new Provincial Bond Purchase Program as well as purchasing up to $10 billion of investment grade corporate bonds in the secondary market as part of its new Corporate Bond Purchase Program. Both programs will be put in place in the coming weeks.