No changes from Bank of Canada this time

Today, the Bank of Canada kept its key lending rate unchanged at 0.25%, as well as the current pace of the bond purchase program.

The Governor Tiff Macklem repeated the previous promise not to raise the overnight rate until all the damages from the COVID-19 pandemic are offset. In addition to it, the BoC said it would keep purchasing $2 billion (US$1.5 billion) a week of Canadian government bonds, reducing the pace in accordance with the economic recovery results.

“All future changes of the program will be based on the Governing Council’s assessment of the strength and durability of the economic recovery,” – the Bank noted in its official statement. “We will keep providing the necessary level of monetary policy stimulus in order to support the economic recovery and normalize the inflation.”

Such a decision didn’t come as a surprise for analysts, many of whom still predict further stimulus reduction by the BoC in October. The central bank has already started to gradually return to more normal policy, cutting its asset purchase program three times since the end of 2020.

Today’s statement didn’t include any forecasts. Waiting for October to keep tapering also gives the Bank time to review the new economic data on the summer performance, following a number of weak data report.

The BoC was quite careful with the ongoing election campaign, avoiding any significant changes that could provoke parties before the September 20 parliamentary election.

The Bank admitted the latest weak economic data reports, but kept predicting stronger results in the second half of 2021. In terms of Canada’s economic recovery, the Bank’s tone was cautiously optimistic.

Bank also mentioned Canadian housing market, sitting that slow down form previous heights is developing as expected.

As you know, the rate decision comes amid an unexpected output decline, with the national GDP went down by 1.1% in Q2, while the Bank expected a 2.5% gain.

In July, the central bank reduced its weekly purchases of government debt by a one-third to $2 billion, and analysts exepct the number to go down to $1 billion by the start of 2022. As a result, the BoC will reach almost a neutral pace of purchases where holdings stay unchanged as securities grow.

The Bank of Canada has promised to reduce the purchases to zero before it begins to even think about a rate hike. Investors believe a rate increase is 100% possible during the next 12 months. Moreover, three hikes over the next two years are expected. If the forecasts are true, Canada will have the highest policy rate among Group of Seven countries.

The next rate meeting is scheduled for October 27.