COVID 19 Pandemic and Interest Rates

COVID-19 Pandemic
The coronavirus pandemic is a grave global health threat, significantly disrupting everyday life and the economy in Canada as well as everywhere else across the world. While all Canadian economic sectors have been adversely impacted, a few like the travel, hospitality, service, and energy industry have been especially hit hard. Necessary public health measures are taken for containing virus spread, including the closedown of educational institutions, social distancing, and lockdowns, and emergency states, themselves greatly and adversely affect economic activity. But a key point to note is that though the effect is huge, it will, nevertheless, pass soon. Experts worldwide have adopted major valiant steps to combat the virus and its spread and support individuals as well as organizations through this very tough time (CBC News, 2020).
Impact of COVID-19 on Interest Rates
The average Canadian interest rate between 1990 and 2020 was 5.86% - it attained an unprecedented high in February 1991 (16%) and its lowest figure in April 2009 (0.25%). COVID-19 has coerced organizations into shutting down and employees into remaining indoors, only leaving the safety of their homes when they have no other alternative. However, to do so, in a huge public health endeavor to decelerate the disease's spread, resulting in instant, sharp consumer spending and business activity decline. Preliminary Statistics Canada figures reveal trends in interest rates for the last two decades, with the present decline of 0.25% (Bank of Canada, 2020). 
The Bank of Canada retained a steady standard interest rate at 0.25% on 3rd June 2020, as anticipated by many. Policymakers observed the pandemic adversely impacting employment and productivity, though financial actions and lowered interest rates have together been facilitating economic recovery. Bank Committee term repo operational frequency has been decreased to once weekly, and its banker acceptance purchase program to biweekly; it claims it will adjust the programs should the market situation necessitate it. On the other hand, other provincial, federal, and business debt purchase initiatives have maintained their extant scope and frequency (Bank of Canada, 2020). 
Ever since the pandemic first made its way into the country, measures are being taken by the Bank of Canada to ensure the national fiscal and economic systems endure in the face of the unprecedented lockdown. The organization's response includes decreasing interest rates of major policies, and debt- and bond-buying for ensuring proper functioning of important funding markets. The central bank has drastically lowered its rate, beginning from the start of the pandemic, from 1.75% towards the end of February to 0.25%. The rate set by the bank governs the rates fixed by other banks on bank accounts and loans for the nation's savers and borrowers. This rate cut was implemented in a bid to stimulate the nation's economy through encouraging investments and borrowing; this, however, isn't the sole measure the bank adopted for defending the Canadian economy against the pandemic's unprecedented negative impacts (Bank of Canada, 2020). 
The most popular measure the Bank adopts for stimulating the national economy via increased borrowing is reducing interest rates. Normally, key policy rates permeate through the nation's economy, influencing bank savings accounts, and loan interest rates. On the other hand, these times are anything but normal, and rate cutbacks on the part of banks hardly result in economic stimulation, as lockdowns imply people cannot spend anywhere. Rather, near-zero rates serve to support other credit market areas. They decrease borrowers' debt-service costs in a period where each dollar counts, guaranteeing that when recovery begins, we will have optimal momentum (Bank of Canada, 2020). 
Additionally, the bank implemented numerous debt- and bond-buying schemes for ensuring sufficient cash within the system. In the early part of June, it declared its decision to dabble in these two areas as things were taking a turn for the better. However, it continues to buy governmental bonds at unprecedented speed for ensuring banks have sufficient funds at their disposal for lending to their credit-worthy mortgagors. These schemes for improving market functioning are showing the desired results. Short-run financing conditions have been improving following considerable strains in March. Thus, the Bank has been decreasing term repo operational frequency to once weekly, and its banker acceptance purchase program to biweekly (Bank of Canada, 2020). 
The rationale underlying the careful optimism of the bank is its perception that the nation has been able to avoid the projected worst-case pandemic-linked economic scenario forecasted in April. Currently, the nation's central bank expects a 10-20% GDP drop when compared to last year's last quarter, which is below the 15-30% drop projected in April. Developed nations' immense policy responses have facilitated economic shutdown impact cushioning and replacement of lost income. Conditions have gotten better, financially, with commodity prices increasing of late following their sharp drop in the early part of the year. The bank's rate decision implies Canada's residents having variable rate loans ought not to be expecting any lending-rate changes soon (Bank of Canada, 2020). 
Real GDP levels during the 2nd economic quarter will probably drop by an additional 10-20% with ongoing lockdowns and the drastically lower energy sector investments taking an additional toll on production. Key, targeted financial actions and decreased interest rates combined have been cushioning the nation against the negative effects of the nationwide lockdown on people's disposable income as well as helping pave the way for the recovery of the nation's economy. With business borrowing spreads continuing to be quite high in comparison to the previous year, the central bank's governor may, soon, decide upon expanding its organizational bond purchase scheme or declare financing for its lending scheme. Canada's currency (CADUSD=X) rallied moments following the announcement by the Bank of Canada, though it was already strong earlier. Recent trading reveals the Canadian currency is significantly stronger as compared to the American dollar. However, this strong performance is probably more because of a greater risk-taking appetite in international investors than because of any Canada-specific factors (Bains, 2020).
Conclusion
Key, targeted financial actions and decreased interest rates combined have been cushioning the nation against the negative effects of the nationwide lockdown on people's disposable income as well as paving the way for the recovery of the nation's economy. Though it is not possible to gauge the outlook concerning this year's latter half and beyond, the Bank believes the economy will commence growing again in the 3rd quarter.
References
Bains, J. (2020, 3rd June). Bank of Canada says COVID-19 impact has peaked, holds interest rate at 0.25 percent. Yahoo Finance - Stock Market Live, Quotes, Business & Finance News. https://ca.finance.yahoo.com/news/bank-of-canada-says-covid-19-impact-has-peaked-holds-interest-rate-at-025-per-cent-142812681.html
Bank of Canada. (2020). COVID-19: Actions to support the economy and financial system. https://www.bankofcanada.ca/markets/market-operations-liquidity-provision/covid-19-actions-support-economy-financial-system/
CBC News. (2020, 3rd June). Bank of Canada holds rate steady, saying COVID-19 economic impact 'appears to have peaked' | CBC news. https://www.cbc.ca/news/business/bank-of-canada-rate-decision-1.5596399