Bank of Canada Rate Annoucement - July 14, 2021
July 14, 2021 | Posted by: Ken Fadel
The BoC published its quarterly Monetary Policy Report today which contained updated growth and inflation projections in addition to its fifth interest rate decision of 2021.
As expected, the BoC left its target overnight benchmark rate unchanged at 0.25%, but more importantly the report included several key updates.
GDP growth for 2021 is now projected to be 6%, which is a bit lower than estimated back in April. While growth rates for 2022 and 2023 are now expected to be higher, 4.25% and 3.25% respectively.
Housing market activity is projected to “ease back from historical highs” while stronger international demand should underpin “a solid recovery in exports”.
CPI inflation was 3.6% in May driven by temporary factors that included the comparison to last year’s depressed output – referred to as “base year effects”, higher gasoline prices and “pandemic-related bottlenecks” as economies reopen. Inflation is likely to remain around 3% through the rest of this year but drop back toward the BoC’s 2% target in 2022 as the slack in the economy begins to reduce price levels.
The BoC reiterated that it would continue its Quantitative Easing program to keep rates low across the yield curve but that it would reduce its weekly bond buying program to $2 billion per week from the previous $3 billion, an adjustment it said, “reflects continued progress towards recovery and the Bank’s increased confidence in the strength of the Canadian economic outlook.”
The BoC is of the opinion that that the Canadian economy still has considerable excess capacity. As such, it intends to hold its policy interest rate at the effective lower bound until economic slack is absorbed, and its 2% inflation target is “sustainably achieved.”
The BoC’s next scheduled policy announcement is September 8th.