Bank of Canada keeps key interest rate on hold

BANK OF CANADA EXPECTS RETURN TO GROWTH IN Q3

The economy appears to have avoided a worst-case scenario due to the COVID-19 pandemic, the Bank of Canada said Wednesday as it kept its key interest rate steady at its lower bound.

The bank left its target for the overnight rate unchanged at 0.25 per cent, which it has said is as low as it will go.

The bank also tinkered with some programs designed to ease the flow of credit, pointing to improving indicators in the market and the economy overall.

Overall, the central bank said Wednesday it believes the impact of the pandemic on the global economy has peaked, but hedged the outlook by warning of a high level of uncertainty about how the recovery will unfold.

Since the pandemic struck Canada and public health restrictions put a freeze on the economy in March, the country has seen historic drops in jobs and output.

The most recent federal figures on a key benefit for workers now show nearly 8.4 million people have applied for the Canada Emergency Response Benefit.

Statistics Canada’s look at the May jobs market is scheduled for Friday and forecasts are for further job losses on top of the three million lost over March and April.

The central bank also updated its GDP forecast on Wednesday, foreseeing a decline between 10 and 20 per cent in the second quarter, compared with the fourth quarter of 2019, an improvement from the 15-to-30-per-cent drop in the quarter highlighted in the bank’s worstcase scenario in April.

Economist Jim Stanford said the message the bank sent was that things are not as bad as it thought.

“We’re still looking at an unprecedented downturn in employment and output, unlike anything we’ve experienced since the 1930s,” said Stanford, director of the Centre for Future Work in Vancouver.

“This is still an economic and fiscal emergency, and I hope that people don’t interpret the bank’s statement as an indication that we can just get back to normal. That isn’t going to happen for years.”

The bank still expects the economy to grow in the third quarter of the year, crediting government spending and lower interest rates for “buffering the impact of the shutdown.”