Bank of Canada keeps its overnight rate unchanged and doesn’t reduce assets purchases

On Wednesday, the central bank kept its key lending rate and its asset purchase program unchanged. Such a move may cool down the speculation about reducing the stimulus campaign in the nearest future.

The Bank of Canada Governor Tiff Macklem held the overnight rate at 0.25% and reiterated a promise not to increase borrowing costs before the damage from the pandemic is fully offset. According to the Bank, it will not happen earlier than in 2023.

In addition to it, the BoC recommitted to purchasing Canadian government bonds for at least $4 billion (US$3.1 billion) a week, although it noted the program will be reduced as soon as the recovery gains the necessary pace.

It’s interesting that the tone of the statement was more dovish than economists predicted, as they expected the first hints at plans to reduce the volume of asset purchases. The bank admitted the economy is recovering faster than it expected in January. However, it also pointed to a significant amount of slack in the economy amid the on-going uncertainty concerning the evolution of the virus.

“Although the economic prospects have improved, the Governing Council believes that the recovery still needs strong monetary policy support,” – the Bank noted.

While the BoC said it could reduce the purchases as soon as the recovery strengthens, it didn’t provide any exact date, adding that the economy still needs an extraordinary support.

“The labor market is far from recovery, as the employment remains well below pre-pandemic levels,” – the central bank said.

The Bank also reiterated its promise to keep the overnight rate at 0.25% until the economic slack is fully offset. The BoC doesn’t expect it to happen earlier than in 2023.

“It doesn’t look like the central bank will pare back its stimulus as fast and as suddenly as markets have predicted,” – says Simon Harvey from Monex Canada.

The Canadian dollar was almost unchanged following the release, while Canada five-year yields went down by almost 0.02% to 0.937%.

Please tune-in to our live interview this Saturday, March 13 from 7 till 8am at FM88.9 to find out why government and prominent economists overlooked the latest run in Canadian housing market, will tougher mortgage rules and speculative tax be introduced by authorities to tamper red-hot real estate market?