Bank of Canada Will Maintain 0.25% Target Rate, Continue With Bond Purchases

As Canada’s economy continues to experience prolonged slack amid a resurgence of Covid-19 cases and reintroduced lockdowns in some regions across the country, the Bank of Canada reiterated its position on keeping interest rates historically low for the foreseeable future.

According to a statement issued on Wednesday, BoC Governor Tiff Macklem and policy makers announced that the overnight rate will remain steady at 0.25% – which is the effective lower bound – until Canada’s economic recovery is well underway and inflation reaches its 2% target. Moreover, Canada’s central bank also noted that it will continue with its plan to purchase a minimum of $4 billion in Canadian government bonds each week as a means of increasing the money supply.

According to the BoC’s projections released back in October, it will take until at least 2023 before the majority of the slack in Canada’s economy is absorbed, and inflation targets are met. The latest decision by Macklem suggests that the central bank’s stance on maintaining its full support for a strong economic recovery will continue full-force ahead, especially since third quarter growth was lower than projected. Given the current resurgence of coronavirus cases though, which in turn forced numerous regions across the country to reimpose restrictions and social distancing measures, fourth quarter growth will likely also remain subdued.

However, the BoC did note that it does not plan on getting ahead of itself in terms of providing additional support to the economy, especially after promising news of vaccine developments. The central bank will likely wait until January’s forecast before taking on further proactive measures.

Information for this briefing was found via Bloomberg. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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