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Bank of Canada Maintains Policy Interest Rate at 0.25%

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Bank of Canada will hold current level of policy rate until inflation objective is achieved, continues quantitative easing.

The highlights are as follows:

  • 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 global economy is recovering from the economic effects of COVID-19. The US economic recovery appears to be gaining momentum as virus infections decline and fiscal support boosts incomes and consumption. New fiscal stimulus will increase US consumption and output growth further.
  • In Canada, the economy is proving to be more resilient than anticipated to the second wave of the virus and the associated containment measures. GDP grew 9.6% in the final quarter of 2020, led by strong inventory accumulation. GDP growth in the first quarter of 2021 is now expected to be positive, rather than the contraction forecast in January. Consumers and businesses are adapting to containment measures, and housing market activity has been much stronger than expected. Improving foreign demand and higher commodity prices have also brightened the prospects for exports and business investment.
  • Despite the stronger near-term outlook, there is still considerable economic slack and a great deal of uncertainty about the evolution of the virus and the path of economic growth. The labour market is a long way from recovery, with employment still well below pre-COVID levels.
  • CPI inflation is near the bottom of the 1-3 percent target band but is likely to move temporarily to around the top of the band in the next few months. The expected rise in CPI inflation reflects base-year effects from deep price declines in some goods and services at the outset of the crisis a year ago, combined with higher gasoline prices pushed up by the recent run-up in oil prices. CPI inflation is then expected to moderate as base-year effects dissipate and excess capacity continues to exert downward pressure. Measures of core inflation currently range from 1.3 to 2 percent.
  • While economic prospects have improved, the Governing Council judges that the recovery continues to require extraordinary monetary policy support. Bank of Canada will continue to provide the appropriate degree of monetary policy stimulus to support the recovery and achieve the inflation objective.

The next announcement will be held on April 21st, 2021.

Sources:

Bank of Canada