Central Banks

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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, BoC to buy more longer-dated bonds, with pace of QE to be gradually reduced to $4B week from $5B week

Bank of Canada Building

  • 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.

Canada Interest Rate

Highlights

  • Holds rates at +0.25%, as expected
  • Length of paper in QE to reflect more longer-dated bonds
  • Pace of QE to be gradually reduced to $4B week from $5B week
  • QE will continue until recovery 'well underway'
  • Near-term activity to be affected negatively by measures taken to combat recent increase in infections
  • US growth "appears to be slowing considerably"
  • The recovery in Europe is slowing
  • China's recovery is broadening
  • Canadian economy is now transitioning to a more moderate recuperation phase
  • The Governing Council will hold 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 our current projection, this does not happen until into 2023 

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 December 2020

The Bank of Canada today maintained 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, reinforced and supplemented by its quantitative easing (QE) program, which continues at its current pace of at least $4 billion per week. 

The rebound in the global and Canadian economies has unfolded largely as the Bank had anticipated in its October Monetary Policy Report (MPR). More recently, news on the development of effective vaccines is providing reassurance that the pandemic will end and more normal activities will resume, although the pace and breadth of the global rollout of vaccinations remain uncertain. Near term, new waves of infections are expected to set back recoveries in many parts of the world. Accommodative policy and financial conditions are continuing to provide support across most regions. Stronger demand is pushing up prices for most commodities, including oil. A broad-based decline in the US exchange rate has contributed to a further appreciation of the Canadian dollar. 

In Canada, national accounts data for the third quarter were consistent with the Bank's expectations of a sharp economic rebound following the precipitous decline in the second quarter. The labour market continues to recoup the jobs that were lost at the start of the pandemic, albeit at a slower pace. However, activity remains highly uneven across different sectors and groups of workers. Economic momentum heading into the fourth quarter appears to be stronger than was expected in October but, in recent weeks, record high cases of COVID-19 in many parts of Canada are forcing re-imposition of restrictions. This can be expected to weigh on growth in the first quarter of 2021 and contribute to a choppy trajectory until a vaccine is widely available. The federal government's recently announced measures should help maintain business and household incomes during this second wave of the pandemic and support the recovery. 

CPI inflation in October picked up to 0.7 percent, largely reflecting higher prices for fresh fruits and vegetables. While this suggests a slightly firmer track for inflation in the fourth quarter, the outlook for inflation remains in line with the October MPR projection. Measures of core inflation are all below 2 percent, and considerable economic slack is expected to continue to weigh on inflation for some time.  

Canada's economic recovery will continue to require extraordinary monetary policy support. The Governing Council will hold 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 our October projection, this does not happen until into 2023. To reinforce this commitment and keep interest rates low across the yield curve, the Bank will continue its QE program until the recovery is well underway and will adjust it as required to help bring inflation back to target on a sustainable basis. We remain committed to providing the monetary policy stimulus needed to support the recovery and achieve the inflation objective.  

 Source: Bank of Canada

From the TradersCommunity News Desk

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