What Does the Bank of Canada do?
Eight times per year, the Bank of Canada (BoC) makes a scheduled announcement about their benchmark lending rate based on data they have assessed about the current state of the Canadian economy. Any change to this rate indicates a possible change to corresponding rates, such as interest rates for mortgages and additional types of consumer loans. This is because the rate set by the bank will directly affect prime rates offered by banks and other financial lenders. For more information, take a look at our blog post breaking down four of the most frequently asked questions regarding the BoC.
Were there any Changes to the Interest Rate?
The Bank of Canada announced that there will be no change to its benchmark lending rate this morning. The rate currently sits at the effective lower bound of 0.25 percent, and is expected to remain there until the second half of 2022. Subsequently, there will be no corresponding change to mortgage interest rates. The bank has adjusted the quantitative easing (QE) program to a target pace of $2 billion per week.
What Information did the Bank Share about the Economy?
- The adjustments that are being made to the quantitative easing program illustrates the bank’s confidence towards the future of the Canadian economy and its progress towards recovery.
- Continued vaccinations throughout the globe are aiding in economic improvement; however, COVID-19 variants and low vaccination rates in certain regions is still causing some uncertainty.
- The bank expects national GDP growth of 6 percent through the second half of this year (slightly slower than its April projections). Due to the fall of COVID-19 cases and easing of restrictions, the bank has also adjusted its forecasts in a positive direction for 2022 (up to 4.5 percent) and 2023 (3.25 percent).
- Household spending is expected to return to near normal levels, which will pave the way for economic recovery.
- Housing market activity recently hit historical highs, but is expected to slow down in the near future.
- Business investment is expected to increase as a result of boosted domestic and foreign demand.
- Employment has begun to pick up as the economy continues to re-open, however the pace of recovery is still varied across industries.
- Core measures of inflation have continued to rise, largely due to demand rising faster than the supply in many services. Supply constraints are also causing higher prices for certain goods.
- Inflation is expected to remain above 3 percent in the short-term, then fall back to 2 percent in 2022. CPI Inflation is likely to remain high, largely due to the spike in gasoline prices and current supply bottlenecks.
Will there be any Interest Rate Changes in the Near Future?
The next rate announcement will take place on September 8, 2021 with no change expected at that time. As noted above, the latest projections by the Bank of Canada hold the rate at 0.25 percent until the latter half of 2022. The Bank of Canada is strongly committed to holding the policy interest rate at its lower bound in order to achieve their target of a 2 percent inflation rate.
How Can I Learn More?
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