Bank of Canada signals low interest rates until 2023
Shady Salah – Media in Toronto
The Bank of Canada on Wednesday said it expects interest rates to remain at current record lows until 2023, and that a second wave of coronavirus infections would have a pronounced impact on near-term economic growth. The central bank held its key overnight rate at 0.25 per cent but tweaked its asset purchase program to shift towards longer-term bonds, which it says have a more direct influence on the borrowing rates most important for households and businesses.
“There is ongoing and significant slack in the Canadian economy,” policy makers led by Governor Tiff Macklem said Wednesday in the report. “The gap between the actual output and the potential output of the economy isn’t expected to close until 2023. The economy is progressing unevenly, with some sectors and workers disproportionately affected by the virus.” Canada’s economy has now entered the “recuperation” phase after a stronger-than-expected rebound the summer.
The recuperation phase will be lengthy and uneven with some sectors recovering faster than others, the bank said, striking a note of caution around the path of the recovery with virus cases rising domestically.
The central bank’s updated estimates of potential growth — its best guess on how fast the economy can expand without putting too much upward pressure on inflation — show that the legacy of the pandemic will extend well into the future. The scarring effects of extended unemployment and depressed business investment forced the Bank of Canada to drop its estimate of potential output to 0.9 per cent in 2021
and 1.1 per cent in 2022, compared with previous estimates of 1.8 per cent and 1.9 per cent, respectively.