Bank of Canada holds interest rates steady, trims bond-buying program
Bank of Canada #BankofCanada
By Julie Gordon and David Ljunggren
OTTAWA (Reuters) – The Bank of Canada on Wednesday held its key interest rate at a record low and reduced the scope of its bond-buying program, while predicting inflation would be higher than previously forecast over the near-term.
The central bank also said the risks of the COVID-19 pandemic to Canada’s economy were “significantly diminished,” and that growth should pick up in the third quarter of 2021 after being weaker than expected in the first half of the year.
The Bank of Canada held its overnight interest rate at 0.25%, as expected, and cut its weekly net purchases of Canadian government bonds to a target of C$2 billion from C$3 billion.
“This adjustment reflects continued progress towards recovery and the Bank’s increased confidence in the strength of the Canadian economic outlook,” it said in a statement.
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Separately, it said the third wave of COVID-19 had slowed Canada’s economic growth.
“However, these negative effects are waning, and the downside risks associated with the pandemic have significantly diminished,” the Bank said in its summer monetary policy report.
Inflation is now expected to remain at or above 3% – the top of the central bank’s 1%-3% inflation control range – through the rest of 2021 on temporary factors related to the pandemic, easing back to the 2% target by 2022 as those factors fade.
It now expects Canada’s economy to grow 6.0% in 2021, down from its April forecast of 6.5%. It revised up the 2022 growth estimate to 4.6% from 3.7%.
The Bank of Canada continues to predict economic slack will be absorbed in the second half of 2022, though it cautioned the estimated timing remains “highly imprecise.”
Canada is assumed to achieve broad COVID-19 immunity in the third quarter of 2021, which will bolster consumer confidence.
The economic recovery is expected to become more broad-based and self-sustaining over the projection horizon, with a strong rebound in employment seen over the coming months.
(Reporting by Julie Gordon and David Ljunggren in Ottawa; Editing by Paul Simao)