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Bank of Canada Holds Overnight Rate at 0.25%
Today’s Bank of Canada announcement, as expected, held the Overnight Rate at 0.25%. This is new Bank of Canada Governor Tiff Macklem’s first policy decision since becoming governor on June 3.
The highlights are as follows:
- The Bank says, “global economic activity is picking up. This return to growth reflects the relaxation of necessary containment measures put in place to slow the spread of COVID, combined with extraordinary fiscal and monetary policy support. As a result, financial conditions have improved.”
- “The Canadian economy is starting to recover… With economic activity in Q2 estimated to have been 15% below its level at end of 2019, this is the deepest decline in economic activity since the Great Depression, but considerably less severe than worst scenarios presented in April.”
- The Bank projects “real GDP declines by 7.8% in 2020 and resumes with growth of 5.1% in 2021 and 3.7% in 2022.”
- “The Bank expects economic slack to persist as the recovery in demand lags that of supply, creating significant disinflationary pressures.”
- “Decisive and necessary fiscal and monetary policy actions have supported incomes and kept credit flowing, cushioning the fall and laying the foundation for recovery. Since early June, the government has announced additional support programs, and extended others.”
- “There are early signs that the reopening of businesses and pent-up demand are leading to an initial bounce-back in employment and output. In the central scenario, roughly 40 percent of the collapse in the first half of the year is made up in the third quarter.”
- “Subsequently, the Bank expects the economy’s recuperation to slow as the pandemic continues to affect confidence and consumer behaviour and as the economy works through structural challenges.”
- “CPI inflation is close to zero, pulled down by sharp declines in components such as gasoline and travel services. The Bank’s core measures of inflation have drifted down, although by much less than the CPI, and are now between 1.4 and 1.9%.”
- The Canadian Economy “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% inflation target is sustainably achieved.”
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