Breaking: BoC lowers policy rate by 50 basis points to 1.25%, USD/CAD spikes toward 1.3400

The Bank of Canada has decided to lower its policy rate by 50 basis points to 1.25% from 1.75% with an aim to help the economy battle the negative impact of the coronavirus outbreak.

With the initial market reaction, the USD/CAD pair spiked above the 1.3400 area and was last seen trading at 1.3395, adding 0.1% on the day.

Key takeaways from the policy statement

"BoC is ready to adjust monetary policy further if required to support growth and keep inflation on target."

"Coronavirus is a material negative shock to Canadian and global outlooks; monetary and fiscal authorities are responding."

"It is becoming clear that Q1 2020 in Canada will be weaker than the bank expected."

"In light of all developments global and Canadian outlooks are clearly weaker than in January."

"Coronavirus represents a significant health threat to a growing number of countries, hitting business activity in some regions and disrupting supply chains."

"This has pulled down commodity prices and CAD; financial conditions globally are becoming less accommodative."

"It is likely as coronavirus spreads, business and consumer confidence will deteriorate, further depressing activity."

"BoC continues to closely monitor economic and financial conditions in coordination with other G7 central banks and fiscal authorities."

"While markets continue to function well, bank will continue to ensure that the Canadian financial system has sufficient liquidity."

"If the drop in Canada's terms of trade is sustained, it will weigh on income growth."

"Business activity in Canada does not appear to be recovering as had been expected after positive trade developments."

"January inflation was stronger than expected due to temporary factors; core measures remain around 2%, consistent with an economy operating close to potential."

"Q4 consumption was stronger than expected, supported by healthy labor income growth; while residential investment continued to grow."