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BOC adjustment rate is very incremental stimulus for the economy recovery process

Bank of Canada makes rate announcement

Ephraim Vecina
Mortgage Broker News

Amid an improved outlook for both the domestic economy and the global financial system, the Bank of Canada announced that it will hold its target for the overnight rate at the effective lower bound of 0.25%, and that it will be adjusting its weekly net purchases of Government of Canada bonds.

The bank rate has also been kept at 0.5%, and the deposit rate at 0.25%.

“The Bank continues to provide extraordinary forward guidance on the path for the overnight rate, reinforced and supplemented by the Bank’s quantitative easing (QE) program,” the institution said in its announcement. “Effective the week of April 26, weekly net purchases of Government of Canada bonds will be adjusted to a target of $3 billion. This adjustment to the amount of incremental stimulus being added each week reflects the progress made in the economic recovery.”

Canada’s sustained resilience despite the COVID-19 pandemic has called for these steps, although the central bank emphasized that “the recovery remains highly dependent on the evolution of the pandemic and the pace of vaccinations.”

Read more: Finder: Low-rate environment can help Canadians address high debt levels

The BoC projected global GDP to grow by just over 6.75% in 2021, around 4% in 2022, and nearly 3.5% in 2023.

“The recovery in the United States has been particularly strong, owing to fiscal stimulus and rapid vaccine rollouts,” the bank said. “The global recovery has lifted commodity prices, including oil, contributing to the strength of the Canadian dollar.”

However, while “substantial” employment gains in February and March accompanied Canada’s stronger-than-expected economic growth in the first quarter, the BoC warned that “new lockdowns will pose another setback and the labour market remains difficult for many Canadians, especially low-wage workers, young people and women.”

“As vaccines roll out and the economy reopens, consumption is expected to rebound strongly in the second half of this year and remain robust over the projection,” the Bank added. “Housing construction and resales are at historic highs, driven by the desire for more living space, low mortgage rates, and limited supply. The Bank will continue to monitor the potential risks associated with the rapid rise in house prices.”

The BoC is expecting Canada’s real GDP growth to touch 6.5% in 2021, and then moderate to around 3.75% in 2022 and 3.25% in 2023.

The Bank has scheduled its next overnight rate announcement for June 09.

 

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