Bank of Canada keeps interest rate at 0.25%
The Bank of Canada plans to let inflation run faster than its two-per-cent target through 2023, reinforcing governor Tiff Macklem’s pledge to orchestrate a “complete” recovery from the COVID-19 recession.
Canada’s central bank on July 14 published new forecasts predicting the country is on the verge of an impressive burst of economic growth that will offset a disappointing start to the year.
The projections weren’t strong enough to alter Macklem’s plan to keep the benchmark interest rate pinned near zero until at least the second half of next year, but evidence of gathering momentum prompted policy-makers to pare their weekly purchases of Government of Canada bonds to $2 billion, from $3 billion previously.
“This adjustment reflects continued progress towards recovery and the bank’s increased confidence in the strength of the Canadian economic outlook,” Macklem and his deputies on the Governing Council said in a statement at the end of their latest round of interest-rate deliberations.
The decision to taper the bond-buying program was widely expected by observers of the central bank, as was an upward revision to growth projections for the second half of the year and 2022.
The short-term trajectory of the economy is correlated with vaccination rates and infections; the former in Canada are now among the world’s highest, and provinces have mostly relaxed the social-distancing measures they implemented to fight COVID-19’S third wave this spring.
Macklem’s forecasting team sees growth surging to an annual rate of 7.3 per cent in the third quarter, compared with two per cent between April and June, as consumers begin to spend some of the savings they accumulated during COVID-19 lockdowns.
The new prediction represents a shift in the central bank’s thinking about the recovery. Previously, officials assumed Canadians would keep whatever cash they accumulated during the pandemic in the bank. Now, they assume that we’ll spend about 20 per cent of that hoard, citing survey data that show households are keen to celebrate the pandemic’s end.