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The Bank of Canada Holds the Interest Rate at 0.25% to Support Economic Recovery

March 10, 2021 • Bank of Canada Interest Rate, Interest Rate Announcement

Economic recovery in Canada has been impacted by multiple COVID-19 related factors including restrictive measures within provinces, business closures, and restrictions on travel to and from Canada.

Though at the same time, Canada has added more vaccines to its authorized vaccine list and the roll-out is picking up pace.

Until the economy can reopen and business resumes as usual, The Bank of Canada is committed to playing an active role in leveraging fiscal and monetary policies to support the recovery process and improve the medium-term growth outlook.

Today, the Bank confirmed that it will hold the target for the overnight rate at the effective lower bound of 0.25%, the Bank Rate at 0.5%, and the deposit rate at 0.25%.

The Bank is also supplementing this policy with its quantitative easing (QE) program, which continues at its current pace of at least $4 billion per week.

When it comes to the current situation of the Canadian economy, it has proven to be more resilient during the second wave of the virus and the associated containment measures than expected.

Some of the elements that have made the economy resilient include:

  • Consumers and businesses are adapting more effectively to containment measures;
  • Strong housing market activity;
  • Improvements in foreign demand and higher commodity prices have resulted in better exports and business investment prospects.

The Bank shared today that the GDP grew 9.6% in the final quarter of 2020 and the GDP growth in the first quarter of 2021 is now expected to be positive (unlike what was forecasted in January).

While the outlook looks positive, there is still uncertainty on the horizon due to different variants of the virus that are cropping up, unemployment numbers, and the overall condition of the global economy.

The Bank also confirmed that the CPI inflation was near the bottom of the 1-3 percent target band and could move temporarily to around the top of the band in the next few months.

To ensure that Canada continues on this path of economic recovery; the Bank has reinforced that it will hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved.

Read the full Bank of Canada rate announcement here: https://www.bankofcanada.ca/2021/03/fad-press-release-2021-03-10/

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