The Bank of Canada maintains rates at 0.25% and points out that they will not rise until 2023

The Bank of Canada has decided to keep interest rates at 0.25% in its March renion, as expected. The entity has not changed its rates for a year, precisely since March 27, 2020, when as a result of the crisis caused by the coronavirus, it reduced them by 50 basis points from the current 0.75 to 0.25%.

BoC statement

The Bank maintains its extraordinary prospective orientation, reinforced and complemented by its pquantitative easing (QE) program, which continues at its current rate of at least $ 4 billion per week.

The global economy is recovering from the economic effects of COVID-19, albeit with constant inequality between regions and sectors. America’s economic recovery appears to be gaining momentum as virus infections decline and fiscal support boosts revenue and consumption. New fiscal stimulus will further boost US consumption and production growth Global yield curves have sharpened, largely reflecting improved US growth prospects, but global financial conditions they are still very accommodating. The prices of oil and other raw materials have risen. The Canadian dollar has been relatively stable against the US dollar, but has appreciated against most other currencies.

In Canada, the economy is proving to be more resilient than anticipated to the second wave of the virus and associated containment measures. Although activity in sectors where maintaining distances is difficult continues to slow down, recent data point to a continued recovery in the rest of the economy. GDP grew 9.6% in the last quarter of 2020, driven by a strong build-up of inventories. Now GDP growth in the first quarter of 2021 is expected to be positive, instead of the contraction expected in January. Consumers and businesses are adapting to containment measures and housing market activity has been much stronger than expected. Improving external demand and rising commodity prices have also improved the outlook for exports and business investment.

Despite the stronger short-term outlook, there is still considerable economic slack and great uncertainty about the evolution of the virus and the path of economic growth. The labor market is a long way from recovery, with the employment still well below pre-COVID levels. Low-wage workers, youth and women have been the hardest hit by job losses. The spread of more transmissible variants of the virus poses the greatest negative risk to activity, as localized outbreaks and restrictions could stunt growth and add turmoil to recovery.

The CPI inflation is near the bottom of the 1-3% target band, but is likely to move temporarily around the top of the band in the coming months. The expected increase in CPI inflation reflects the annual effects of the sharp falls in the prices of some goods and services at the beginning of the crisis a year ago, combined with the rise in gasoline prices driven by the recent rise in oil prices. CPI inflation is expected to moderate as base year effects dissipate and excess capacity continues to exert downward pressure. Measures of core inflation currently range from 1.3 to 2%.

While the economic outlook has improved, the Governing Council considers that the recovery continues to require extraordinary support from monetary policy. We continue committed to maintaining the policy interest rate at the effective lower limit until economic slack is absorbed so that the 2% inflation target is achieved in a sustainable manner. In the Bank’s January projection, this will not happen until 2023. To reinforce this commitment and keep interest rates low across the yield curve, the Bank of Canada continue with your QE program until recovery is on track. As the Governing Council continues to gain confidence in the strength of the recovery, the pace of net purchases of Canadian Government bonds will adjust as necessary. We will continue to provide the appropriate degree of monetary policy stimulus to support the recovery and achieve the inflation target.

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