The Bank of Canada says there won’t be interest rate changes in the nearest future
Today, the central bank kept its key lending rate unchanged at 0.25%.
It was the first rate decision meeting with a new governor Tiff Macklem, who took over the Bank of Canada after Stephen Poloz’s seven-year term ended.
Poloz’s final months brought a series of unexpected rate cuts, as the central banks all over the world started reducing their rates to near zero level in order to support borrowing and investment amid the COVID-19 pandemic.
Today’s decision means the BoC doesn’t plan to change the rate in the nearest future.
“It will be a long way up,” – Macklem noted. “We are being unusually clear that interest rates will remain low for a long time.”
Such a decision was in line with economists’ forecasts. The BoC’s next rate meeting decision is scheduled for September 9, and again, experts don’t predict any changes.
The Bank also provided its quarterly Monetary Policy Report, bringing light to its economic outlook.
According to the BoC, lockdowns and other physical distancing measures in Canada during the period from April to June reduced the national GDP by 15%.
As a result, it was the worst quarter for Canada’s economy since the Great Depression. However, it was still better than the worst-case scenario the central bank predicted at the start of the pandemic.
The Bank expects Canada’s economy to shrink by 7.8% this year, then to recover by 5.1% next year and by 3.7% in 2022.
Although it’s better than could be, it still means the BoC doesn’t expect the national economy to get back to normal during the next two years.
Moreover, this forecast relies on quite an uncertain scenario where Canada doesn’t face the second wave of COVID-19.
“We have assumed there will be no widespread second wave, that’s why there will be no widespread second lockdown,” – Macklem said. “Nevertheless, we expect certain localized flare ups and restrictions.”
Also, the central bank plans to keep purchasing bonds in attempt to support credit markets.