By Fergal Smith and Kelsey Johnson
TORONTO/OTTAWA (Reuters) – Canada said on Friday it will cover 75% of wages for small businesses and the central bank cut its key interest rate to the lowest level in a decade, as officials sought to limit layoffs and bolster an economy hard hit by the coronavirus pandemic.
The support for small and medium businesses – C$95 billion in direct support and deferred taxes – is aimed at stemming job losses across the country. The government plans other measures to support the ailing energy, airline and tourism industries.
“Our government knows you’re really feeling the impacts of this pandemic especially with the end of the month coming up,” Prime Minister Justin Trudeau said in his daily address. “So here’s what we’re going to do to take some of that pressure off.”
Measures include one-year, interest-free loans, an additional $12.5 billion in funding via the country’s business and export development banks, and delays in duties and tax payments to help boost cash liquidity.
The wage subsidy, raised from 10%, is retroactive to March 15. Trudeau said he hoped businesses would hire back workers previously laid off. More than half a million Canadians applied for jobless benefits last week alone.
The Canadian Chamber of Commerce said the new wage subsidy was “a lifeline for hundreds of thousands of small businesses and millions of employees.”
Canada reported 4,689 coronavirus cases and 53 deaths.
Earlier, the Bank of Canada unexpectedly cut its overnight interest rate by 50 basis points to 0.25%, its lowest level since June 2010. It was the third cut in March.
The central bank launched what observers called its first-ever quantitative easing program, saying it would buy government and commercial debt.
“A firefighter has never been criticized for using too much water,” Bank of Canada Governor Stephen Poloz said after the rate cut was announced.
Separately, Canada’s financial regulator eased its capital and liquidity requirements for banks, changed credit loss provisioning and allowed more loans to be securitized.[nL4N2BK4P9]
Canada’s parliament this week approved a C$52 billion ($37 billion) financial package to support the economy and Canadians left without work.
While Poloz said the bank stands ready to “take further action as required,” he said it does not believe it would be sensible for interest rates to go lower.
The Canadian dollar strengthened to a 10-day high. Canada’s main stock market resumed its slide after a three-day winning run, and domestic bond yields plunged as investors grew more nervous about the spread of the coronavirus.
Poloz, who is set to retire in June, said the asset purchase program is aimed at improving the “functionality” of financial markets. He said negative interest rates are an available tool, but he did not think they were suitable.
The central bank launched the Commercial Paper Purchase Program to help alleviate strains in short-term funding markets. It will begin with purchases of C$5 billion of Government of Canada securities per week, across the yield curve.
The quantitative easing “was sorely needed and we expect that we will see probably more QE announced within the next quarter,” said Andrew Kelvin, senior rates strategist at TD Securities.
(Reporting by Fergal Smith and Kelsey Johnson; Additional reporting by Steve Scherer in Ottawa and Nichola Saminather and Jeff Lewis in Toronto; Writing by Amran Abocar; Editing by Steve Orlofsky and Leslie Adler)