The Bank of Canada left the key lending rate at 0.25 percent on Wednesday as expected. BoC repeated it will hold interest rate at the effective lower bound until economic slack is absorbed. Bank of Canada kept bond purchases to C$3 billion a week with its projection for full recovery to second half of 2022.
The Bank of Canada left the key lending rate at 0.25 percent on Wednesday as expected. BoC repeated it will hold interest rate at the effective lower bound until economic slack is absorbed. Bank of Canada kept bond purchases C$3 billion a week, with its projection for full recovery to second half of 2022.
- The Bank of Canada held the overnight rate at 1/4 per cent.
- The Bank Rate is correspondingly 1/2 per cent
- The deposit rate is 1/4 per cent.
- Lower bound remains at 0.25% and upper bound 0.50%
- Monthly asset purchases at $3B vs $3 billion prior
- Economic developments have been broadly in line with the outlook in the April Monetary Policy Report
- BOC maintains forward guidance on the path for the overnight rate
- Says global economic activity is picking up
- Notes that commodity prices have risen further, notably oil, and the Canadian dollar has seen a further appreciation
- Q1 GDP was below BOC forecast but “underlying details indicate rising confidence and resilient demand”
- CPI inflation will likely remain near 3% through the summer, it is expected to ease later in the year, as base-year effects diminish and excess capacity continues to exert downward pressure
- Notes it’s due to base effects Forecasts assume $85B in Canadian stimulus,
- the US achieving broad immunity mid-year with Canada later in the year
- Assumes restrictions lifted in mid-May.
- Says new wave represents a material setback but says it will be temporary
- Says around 475K people would need to be hired to reach pre-pandemic levels
- Sees US GDP up 7.0% in 2021 vs 5.0% in January forecast
At current pace, the Bank of Canada will hold over half of the government of Canada debt by year end.
Bank of Canada full rate statement for June 2020
FOR IMMEDIATE RELEASE Media Relations Ottawa, OntarioJune 9, 2021
The Bank of Canada today held its target for the overnight rate at the effective lower bound of ¼ percent, with the Bank Rate at ½ percent and the deposit rate at ¼ percent. The Bank is maintaining its extraordinary forward guidance on the path for the overnight rate. This is reinforced and supplemented by the Bank’s quantitative easing (QE) program, which continues at a target pace of $3 billion per week.
With COVID-19 cases falling in many countries and vaccine coverage rising, global economic activity is picking up. Growth remains uneven across regions, however. The US is experiencing a strong consumer-driven recovery and a rebound is beginning to take shape in Europe, while a resurgence of the virus is hampering the recovery in some emerging market economies. Financial conditions remain highly accommodative, reflected in broadly higher asset prices. Commodity prices have risen further, notably oil, and the Canadian dollar has seen a further appreciation.
In Canada, economic developments have been broadly in line with the outlook in the April Monetary Policy Report (MPR). Despite the second wave of the virus, first quarter GDP growth came in at a robust 5.6 per cent. While this was lower than the Bank had projected, the underlying details indicate rising confidence and resilient demand. Household spending was stronger than expected, while businesses drew down inventories and increased imports more than anticipated. Renewed lockdowns associated with the third wave are dampening economic activity in the second quarter, largely as anticipated. Recent jobs data show that workers in contact-sensitive sectors have once again been most affected. The employment rate remains well below its pre-pandemic level, with low wage workers, youth and women continuing to bear the brunt of job losses.
With vaccinations proceeding at a faster pace, and provincial containment restrictions on an easing path over the summer, the Canadian economy is expected to rebound strongly, led by consumer spending. Housing market activity is expected to moderate but remain elevated. Strong growth in foreign demand and higher commodity prices should also lead to a solid recovery in exports and business investment. Despite progress on vaccinations, there continues to be uncertainty about the evolution of new COVID-19 variants. More broadly, the risks to the inflation outlook identified in the April MPR remain relevant.
As expected, CPI inflation has risen to around the top of the 1-3 percent inflation-control range, due largely to base-year effects and much stronger gasoline prices. Core measures of inflation have also risen, due primarily to temporary factors and base year effects, but by much less than CPI inflation. While CPI inflation will likely remain near 3 percent through the summer, it is expected to ease later in the year, as base-year effects diminish and excess capacity continues to exert downward pressure.
The Governing Council judges that there remains considerable excess capacity in the Canadian economy, and that the recovery continues to require extraordinary monetary policy support. We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved. In the Bank’s April projection, this happens sometime in the second half of 2022. The Bank is continuing its QE program to reinforce this commitment and keep interest rates low across the yield curve. Decisions regarding adjustments to the pace of net bond purchases will be guided by Governing Council’s ongoing assessment of the strength and durability of the recovery. We will continue to provide the appropriate degree of monetary policy stimulus to support the recovery and achieve the inflation objective.
Source: Bank of Canada
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