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June 09, 2021BANK OF CANADA MONETARY POLICY The Bank of Canada announced today that it will hold its target for the overnight rate at the effective lower bound of 0.25%, with the Bank rate at 0.50% and the deposit rate at 0.25%. The Bank also noted that it is maintaining its forward guidance and quantitative easing program at its current pace of $3 billion per week.
The global economic recovery is gaining momentum with increasing vaccine coverage in many countries. However, growth continues to be uneven across regions. Strong consumer demand is supporting economic recovery in the US and Europe while growth in some emerging economies is hampered by the pandemic.
In Canada, recent economic developments have been in line with the Bank of Canada’s outlook in the April Monetary Policy Report (MPR). Canada’s GDP increased 5.6% in the first quarter of 2021 despite the impacts of the second wave of the pandemic. The Bank notes that while the first quarter growth was lower than the Bank had projected, the underlying drivers show increased confidence and demand.
CPI inflation in Canada increased 3.4% in April 2021 reflecting the impacts of the base-year effects and higher gasoline prices. Core inflation was also up primarily due to temporary factors and base year effects. The Bank expects CPI inflation to remain near 3.0% range through the summer, and moderate in the second half of the year as base-year effects diminish and excess capacity puts downward pressure on prices.
The Bank notes that extraordinary monetary policy support is needed to keep Canada’s economic recovery on its track. The Bank reconfirmed its commitment to hold the policy rate at the effective lower bound until economic slack is absorbed, and the 2 percent inflation target is sustainably achieved. The April MPR expects these conditions to continue until the second half of 2022. The QE program currently in place will continue until the recovery is well underway and will be calibrated to provide the monetary policy stimulus needed to support the recovery and achieve the inflation objective.
The next scheduled date for announcing the overnight rate target is July 14, 2021. The next full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR on the same day.
Bank of Canada: Rate Announcement
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