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 overnight lending rate set by the Bank of Canada was expectedly held steady today at 0.25 percent. Current projections for future rate changes are now anticipating no change in the rates until at least the second quarter of 2022, as opposed to the second half of 2022 as previously projected. As economic recovery from COVID-19 continues, The Bank has decided to end its quantitative easing (QE) program and move into the reinvestment phase. This includes purchasing Government of Canada bonds solely to replace maturing bonds.
What Information did the Bank Share about the Economy?
- GDP is now projected to grow rather than contract in quarter one of this year, due to unexpected resiliency in the Canadian economy.
- Activity in the housing sector has been more robust than anticipated, and forecasts for business investment and exports have also improved due to increased foreign demand and higher commodity prices.
- The Canadian dollar has appreciated against the majority of other currencies, but remains stable against the US dollar.
- Long-term economic recovery remains largely uncertain, and is dependent on the continued evolution of the COVID-19 pandemic.
- Employment remains subdued in comparison to pre-pandemic levels. The most significant impacts in terms of job losses have been incurred by women, youth workers, and low-wage workers.
- CPI inflation remains close to the low-end of the 1-3 percent target, but is expected to jump close to the higher end, albeit temporarily, over the next few months.
- The central bank expects significant fiscal stimulus measures to remain in place in support of economic recovery. The purchase of bonds through the Quantitative Easing program will be adjusted as necessary.
Will there be any Interest Rate Changes in the Near Future?
The next rate announcement will take place on April 21, 2021 with no rate change expected at that time. January projections by the Bank of Canada hold the rate at 0.25 percent until 2023, when economic activity is able to maintain the inflation target of two percent. The next Monetary Policy Report (MPR) will be released alongside the rate announcement on April 21.
How Can I Learn More?
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