January 20, 2021: Bank of Canada Announcement

Posted on 20 January, 2021

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, take a look at our blog post breaking down four of the most frequently asked questions regarding the BoC.


Were there any Changes to the Interest Rate?
As expected, the Bank of Canada maintained its key interest rate at the effective lower bound of 0.25 percent today. The effective lower bound is the lowest percentage the rate can sit at without becoming counterintuitive. The central bank also announced no changes to its Quantitative Easing (QE) program, with continued spend of at least $4 billion per week. The QE program involves purchasing Government of Canada bonds in order to inject money into and stimulate the economy.


What Information did the Bank Share about the Economy?

  • The ongoing pandemic is still causing severe economic impacts on a global scale. The first-wave of the COVID-19 vaccine rollout has begun, which has helped reduce uncertainty across the country.covid-19 vaccine
  • The bank’s Monetary Policy Report (MPR) outlined projections for global growth of above 5 percent for both 2021 and 2022, and slightly below 4 percent for 2023.
  • The Canadian dollar continues to appreciate due to a declining US exchange rate and an increase in commodity prices.
  • The economic momentum nearing the end of 2020 was diminished by the spike in positive COVID-19 cases and subsequent lockdowns in many parts of the country.
  • Consequently, the bank predicts negative growth for the first quarter of 2021 followed by a strong rebound in quarter two assuming restrictions can be lifted before the end of March 2021.
  • Long-term projections in today’s MPR are stronger than they were in October, which the bank attributes to “earlier-than-expected availability of vaccines and significant ongoing policy stimulus.”
  • Real GDP declined by 5.5 percent in 2020, and is expected to rebound by 4 percent in 2021.
  • CPI inflation is nearing the low end of the bank’s 1-3 percent target, while core inflation remains well below the 2 percent target.
  • The Canadian economy will continue to require significant monetary policy support and the purchase of government bonds will be adjusted only when recovery is “well underway.”

Will there be any Interest Rate Changes in the Near Future?
The next rate announcement will take place on March 10, 2021 with no rate change expected at that time. Current projections by the Bank of Canada hold the rate at 0.25 percent until 2023, when the two percent inflation target can be “sustainably achieved.”


How Can I Learn More?
For up-to-date information on interest rates and other important mortgage news that may impact you, 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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