Bank of Canada Announcement: The Reopening Phase for Canada

Posted on 09 September, 2020

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?
Once again, the Bank of Canada has opted to hold its benchmark rate at the effective lower bound of 0.25 percent. Although moving the rate lower than 0.25 percent would be considered counterproductive, the Bank expects Canadian recuperation after COVID-19 to be “heavily reliant on policy support.” The Quantitive Easing (QE) program will remain in effect at this time, with the bank purchasing a minimum of $5 billion per week in Government of Canada bonds. This measure aims to help borrowing more affordable for Canadian businesses and households.

What Information did the Bank Share about the Economy?

  • The central scenario outlined in July’s Monetary Policy Report (MPR) and detailed on our latest blog is evolving as largely as expected. Real GDP dropped by 11.5 percent from April to June, with a total decrease of just over 13 percent in the first half of 2020.
  • Economic activity in the third quarter of 2020 appears to be occurring at a faster pace than projected in July’s MPR. This activity is supported by federal programs such as the CEWS and CERB.
  • Subsequently, the Bank has been able to decrease its utilization of the short-term liquidity programs announced in April.
  • Canada currently remains in the reopening phase of recovery. The Bank noted that the recovery rate remains highly dependent on how COVID-19 continues to unfold.
  • There was a marked increase in household spending over the summer months, supported by strengthened employment rates.
  • On a national scale, employment is now 5.7 percent below pre-COVID levels. Alberta did not see a significant change to employment numbers in August.
  • CPI inflation is close to zero, while “measures of core inflation are between 1.3 and 1.9 percent.” The bank expects CPI inflation to remain near the zero percent mark for the near future.
  • Ongoing uncertainty continues to weaken business investment, although recent data have been reassuring.

Will there be any Interest Rate Changes in the Near Future?
The central Bank expects both the policy interest rate and the QE program to remain in place until “recovery is well underway” and we are able to sustain the CPI inflation target of two percent. The next announcement is set for October 28, 2020.

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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