Will an SVB crash make the Bank of Canada cut its overnight rate?

It looks like the Bank of Canada may review its interest rate strategy amid the Silicon Valley Bank’s collapse and federal bailout.

The bank crashed on March 10 – it became the second largest collapse of a US-based financial institution and the largest one since the 2008 financial crisis.

Before the collapse, markets expected there’s a possibility of a 0.25% rate cut by the BoC on April 12, and at least one more cut by 0.5% by this summer.

Nevertheless, at the start of this week, markets were pricing at a 40% chance of a rate cut in April and were almost sure we’ll see another one by August. In addition to it, the US Federal Reserve could also reconsider its rate strategy.

Following an unsuccessful attempt to raise capital and being unable to pay back clients who withdrew their deposits, SVB was taken under control by the US Federal Deposit Insurance Corporation.

At the same time, the Office of the Superintendent of Financial Institutions (OSFI) took over SVB’s Canadian arm on March 12. According to Superintendent Peter Routledge, OSFI plans to reduce SVB’s Canadian operations.

“With this temporary decision, we are protecting the interests of the branch’s creditors,” – he noted. “Just to make it clear: The Silicon Valley Bank branch in Canada does not accept deposits from Canadians, and this collapse was caused by the circumstances particular to Silicon Valley Bank in the U.S.”

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