Bank of Canada Announcement: The Impact of COVID-19

Posted on 03 June, 2020

What Does the Bank of Canada do?
Eight times per year, the Bank of Canada (BoC) makes an announcement about their base lending rate based on data they have assessed about the current state of the Canadian economy. Any change to this rate indicates a possible change to corresponding rates, such as interest rates for mortgages and additional types of consumer loans. This is because the rate set by the bank will directly affect prime rates offered by banks and other financing lenders. For more information, our recent blog post breaks down four of the most frequently asked questions regarding the BoC.

Were there any Changes to the Interest Rate?
The Bank of Canada held its benchmark rate steady at 0.25 percent today, which is considered the effective lower bound of the key interest rate. This is the point at which reducing the rate further would be considered counterproductive.

The boc also confirmed the “severe impact” of COVID-19 on the global economy, which appears to have reached its peak.

What Information did the Bank Share about the Canadian Economy?

  • Although the impact of COVID-19 has peaked, there is still a high degree of uncertainty on what recovery will look like. The central bank does expect recovery to occur at a different pace across regions, depending on severity of the outbreak in each region.
  • Canadians have seen unprecedented losses in both output and employment, however “the Canadian economy appears to have avoided the most severe scenario presented in the Bank’s April Monetary Policy Report (MPR).”
  • The bank is expecting a decline of an additional 10-20 percent in real GDP for the second quarter of 2020. This is due to “continued shutdowns” and a drastic decline in energy sector investment.
  • CPI inflation is close to zero, largely due to the temporary decrease in gasoline prices. Additional temporary factors are expected to hold inflation well below the target on a short-term basis.
  • Growth is expected to resume in the third quarter of this year, attributed in part to lower interest rates and “decisive and targeted fiscal actions.”
  • The bank reports that these fiscal actions (including the several programs outlined in our last update), are having their intended effect. These programs will continue to be adjusted as necessary.
  • As restrictions ease, the bank will be shifting its focus to “supporting the resumption of growth in output and employment.”

Will there be any Interest Rate Changes in the Near Future?
The bank will continue to monitor recovery from COVID-19 on both a global and national scale. While we can expect no further decrease to the rate, any increase will be dependent on “the necessary degree of monetary policy accommodation required to achieve the inflation target.’’ The next announcement is set for July 15, 2020, at which point the next Monetary Policy Report (MPR) will also be released.

How Can I Learn More?
For up-to-date information on interest rates and other mortgage news, you can follow us on Facebook, Instagram, or LinkedIn. Questions about today’s announcement? Leave a comment below, or contact our office and speak to one of our Mortgage Brokers today!

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