What Does the Bank of Canada do?
Eight times per year, the Bank of Canada (BoC) makes a scheduled announcement about their benchmark 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 financial 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 reinforced the decision to keep its benchmark interest rate at 0.25 percent today. Although the Quantitative Easing (QE) program remains in place, two changes were noted in today’s press release:
- The bank is “gradually reducing” investment from $5 billion to $4 billion per week; and
- Purchases will shift to longer-term bonds moving forward. Longer term bonds ”have more direct influence on the borrowing rates that are most important for households and businesses.”
What Information did the Bank Share about the Economy?
- Economic growth in the recuperation phase of COVID-19 continues to depend heavily on the number of cases. Heavy reliance on policy support is expected through the foreseeable future.
- Oil prices are sitting approximately thirty percent below where they were just before the pandemic hit. However, commodity prices outside of the energy sector have “more than fully recovered.”
- Since July, the value of the Canadian dollar has increased while the US dollar has depreciated.
- Canadians have also seen stronger than expected growth in both GDP and employment numbers as businesses continued to reopen throughout the summer.
- Growth is expected to slow down nearing the end of the year, as the number of positive COVID-19 cases continues to rise.
- The federal government has extended and modified relief programs, including the Canada Emergency Wage Subsidy (CEWS), Canada Recovery Benefit (CRB), Canada Recovery Sickness Benefit (CRSB), and Canada Recovery Caregiving Benefit (CRCB).
- Global GDP is projected to shrink by 4 percent in 2020, and rebound by an average of 4.5 percent over 2021 and 2022.
- Within Canada, GDP is expected to contract by 5.5 percent in 2020, with growth of 4 percent over the next two years.
- In September, the CPI inflation rate was 0.5 percent and is not expected to rebound to the target range of 1-3 percent until early 2021. Core inflation remains below the 2 percent target.
Will there be any Interest Rate Changes in the Near Future?
The next rate announcement will take place on December 9, however no rate change is expected at that time. According to today’s announcement, “Governing Council will hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved.” The central bank does not currently expect the economy to hit this target until 2023.
How Can I Learn More?
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