The Bank of Canada (BoC) lowered its target for the overnight rate by 50 basis points to 1.25 percent on Wednesday, while economists had expected a 25-basis point-cut.

In its policy statement, the Canadian central bank noted that the "COVID-19 virus is a material negative shock to the Canadian and global outlooks, and monetary and fiscal authorities are responding."

According to the BoC, the COVID-19 represents a significant health threat to people in a growing number of countries. "In consequence, business activity in some regions has fallen sharply and supply chains have been disrupted', it said, adding that this has pulled down commodity prices and the Canadian dollar has depreciated.

The Canadian central bank expects the global business and consumer confidence will deteriorate, further depressing activity, as the virus spreads.

For Canada, the Bank sees the first quarter of 2020 to be weaker than it had expected. "The drop in Canada's terms of trade, if sustained, will weigh on income growth," the BoC said. "Meanwhile, business investment does not appear to be recovering as was expected following positive trade policy developments".

It also promised to adjust monetary policy further if required to support economic growth and keep inflation on target. "While markets continue to function well, the Bank will continue to ensure that the Canadian financial system has sufficient liquidity", the BoC noted.