Said MTG

Bank of Canada holds interest rate at 0.25%, warns of economic decline

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The Bank of Canada on Wednesday held its target for the overnight rate at the effective lower bound of 0.25%, with the Bank Rate at 0.5% and the deposit rate at 0.24%.

The Bank is maintaining its extraordinary forward guidance, reinforced and supplemented by its quantitative easing (QE) program, which continues at its current pace of at least $4 billion per week.

Workers in high-contact service industries will carry the burden of a new round of lockdowns, which the central bank warns will exacerbate the pandemic’s uneven effects on the labour market.

Governor Tiff Macklem, in his opening remarks at a late-morning news conference, warned the first-quarter decline could be worse than expected if restrictions are tightened or extended.

“The COVID-19 pandemic continues to take a severe human and economic toll in Canada and around the world. The earlier-than anticipated arrival of effective vaccines will save lives and livelihoods, and has reduced uncertainty from extreme levels. Nevertheless, uncertainty is still elevated, and the outlook remains highly conditional on the path of the virus and the timeline for the effective rollout of vaccines,” the Bank said in a statement.

The BOC noted that the economic recovery has been interrupted in many countries as new waves of COVID-19 infections force governments to re-impose containment measures. However, the arrival of effective vaccines combined with further fiscal and monetary policy support have boosted the medium-term outlook for growth.

In its January Monetary Policy Report (MPR), the Bank projects global growth to average just over 5 percent per year in 2021 and 2022, before slowing to just under 4 percent in 2023.

Global financial markets and commodity prices have reacted positively to improving economic prospects.

A broad-based decline in the US exchange rate combined with stronger commodity prices have led to a further appreciation of the Canadian dollar.

Media Mayor Inc.

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