The Bank of Canada on Wednesday, October 28, held its key lending rate at 0.25%, estimating that interest rates will need to stay at historic lows until the economy fully recovers, probably in 2023.
In a statement, the central bank said 4th quarter growth is expected to “slow markedly, due in part to rising COVID-19 case numbers.”
It revised downward its forecast to 4% economic growth in 2021 from 5.1% in its July monetary policy report, following an improved forecast decline of 5.5% in 2020, from -7.8%.
Growth expectations of almost 4% in 2022 were unchanged.
The central bank’s governing council said it “will hold the policy interest rate at the effective lower bound until economic slack is absorbed so that [the bank’s] 2% inflation target is sustainably achieved.”
Inflation is currently at about 0.5%.
“If you’re a household considering making a major purchase, if you’re a business considering investing, you can be confident that interest rates will be low for a long time,” Bank of Canada Governor Tiff Macklem told a news conference.
The central bank said a rebound in employment and gross domestic product (GDP) was stronger than expected when lockdowns were lifted and the economy reopened through the summer.
“The economy is now transitioning to a more moderate recuperation phase,” it said.
Going forward, the bank predicted growth would be “choppy” and demand would be influenced by “the evolution of the virus and its impact on consumer and business confidence.”
It noted also that “highly uneven” economic effects of the pandemic have been felt across sectors.
Macklem said the bank’s projections hinge on a COVID-19 vaccine becoming widely available only in mid-2022.
With several vaccine candidates now being fast-tracked through clinical trials, political leaders and public health authorities have suggested one could be ready sooner.
Globally, rapid expansion as economies reopened has given way to slower growth, with rising COVID-19 infections weighing on the economic outlook in many countries.
A strong rebound of the economy in the United States – Canada’s largest trading partner – appears to be “slowing considerably,” the bank said.
Economic output in China has returned to pre-pandemic levels, but the recovery in Europe is also slowing amid mounting lockdowns.
Oil prices, meanwhile, remain about 30% below pre-pandemic levels, leading to devastation in Canada’s oil patch – the 4th largest oil exporter in the world and a major contributor to Canada’s GDP. – Rappler.com
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