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Bank of Canada Holds Rates

A survey by Finder revealed that 55% of the economists believe that the Bank of Canada’s overnight rate will hold for 12 - 18 months or more and the rates could rising during the second half of 2022. Keeping with the findings of the survey, the Central Bank announced its decision to let the rates be. The bank reiterated its commitment to hold the rates till the second half of next year. As a result, the overnight lending rate will be at 0.25%, just like it has been since March 2020, a figure expected to alter only a year later. The decision is supplemented by the quantitative easing (QE) program, which continues at a target pace of $3 bn per week. 

Though vaccines are being administered to more people and Covid cases are declining, we are still facing uncertain and uneven growth, the prices of products continue to increase, and the Canadian dollar has witnessed appreciation. The newer variants of the virus continue to pose a threat despite vaccinations, and the inflation risks projected by Monetary Policy Report (MPR) in April remain valid. It is no surprise that the CPI inflation has risen riding on base-year effects and much-increased gasoline prices. CPI inflation is expected to remain around 3 percent all of summer and may go down in the latter half of the year. In view of all this, the Governing Council judged that economic recovery would be requiring continuous monetary help. Thus in its own words, the Central Bank remains "committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved. In the Bank’s April projection, this happens sometime in the second half of 2022. The Bank is continuing its QE program to reinforce this commitment and keep interest rates low across the yield curve. Decisions regarding adjustments to the pace of net bond purchases will be guided by Governing Council’s ongoing assessment of the strength and durability of the recovery. We will continue to provide the appropriate degree of monetary policy stimulus to support the recovery and achieve the inflation objective."

Among the most advanced economies in the world, the Central Bank was amid the first few to retract to a lesser policy for expansion for the month of April with its acceleration of the time frame for a hike in the interest rate and paring back of its bond purchases. The overnight rate is scheduled to be announced next on July 14, 2021. Inflation, economic outlook, and risks to projection will be published in MPR on the same date too. This is the reason behind the belief that there wouldn't be a policy change till July.

Furthermore, this time frame until the next projections will give the bank some time to evaluate the economy as the lockdown restrictions are being lifted.

You can read the full statement of the Bank of Canada, here.

If you want to know more about the rates of the bank, its effect on your mortgages, or need help in getting a mortgage, do get in touch with LendX.

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