A pedestrian walks past The Bank of Canada in Ottawa on Tuesday, Dec. 15, 2020. THE CANADIAN PRESS/Sean Kilpatrick

Bank of Canada keeps key interest rate target on hold

Today's announcement points to a recovery some time in the second half of 2022

The Bank of Canada is keeping its key interest rate target on hold at 0.25 per cent.

The rate has been on hold at its rock-bottom level since the onset of the pandemic last year and the central bank has said it won’t increase the rate until the economy has recovered.

Today’s announcement points to a recovery some time in the second half of 2022.

First quarter growth figures for the Canadian economy came in below the central bank’s forecast, but today’s announcement brushes off the shortfall.

The statement says stronger-than-expected household spending and more imports over the first three months of the year point to rising consumer confidence and resilient demand.

The statement adds that renewed lockdowns during the third wave of the pandemic dampened economic activity in the second quarter, as anticipated, affecting workers in high-contact industries like restaurants.

The bank says it expects the Canadian economy to rebound strongly starting this summer, led by consumer spending, as vaccinations proceed at a faster pace and provincial governments ease economic restrictions.

Housing market activity also gets a nod in the rate announcement, with the bank’s governing council forecasting activity to moderate, but remain elevated over the coming months.

The bank also says it expects annual inflation figures to hover around three per cent over the summer because of higher gas prices and comparing prices now to the low levels they were at last year because of the pandemic.

Inflation should then ease later this year, the bank says, but warns that the path of the pandemic and the evolution of new variants still pose a risk to the inflation outlook.

The bank also says it will stay the course on its federal bond purchases for now, after tapering purchases just a few weeks ago citing improving economic conditions.

The purchases help drive down rates charged on mortgages and business loans.

CIBC senior economist Royce Mendes writes the bank chose not to make any waves of its own in financial markets with the third wave of the virus still winding down across the country.

The Canadian Press

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