Bank Of Canada Holds Key Interest Rate

Marco Green
October 28, 2020

The Bank of Canada reinforced its commitment to keeping interest rates at historical lows over the next few years to support an economic recovery that's being hampered by a second wave of COVID-19 cases.

Macklem said until two per cent inflation is "sustainably achieved", which is not expected until 2023, the central bank's benchmark interest rate target will remain low. By buying longer-term bonds, Bank of Canada hopes to increase their price and, therefore, decrease their yield.

In all, it represents a continuation of unprecedented measures that have helped Canada emerge more quickly than expected from the worst of the economic crisis, with Macklem showing little inclination to pare back efforts.

On the headline side, we have the BOC press conference coming up and any hint at negative rates would be the only real thing I can see unnerving CAD bulls. "The Bank of Canada will keep providing monetary stimulus to support the economy through the recovery".

"As the economy recuperates, it will continue to require extraordinary monetary policy support", the Bank of Canada said in a statement on October 28. They had no QE program before the pandemic and will have purchased half the outstanding government of Canada bonds by year end.

"There is scope to do more with the QE program and if we need to do more we will do more". The program will continue until the recovery is well underway.

The projections for growth and inflation mark a return to the bank's usual practice of giving a longer view for the economy in its quarterly monetary policy report.

As for how long the aid should last, Macklem said it was up to the government. The recuperation phase will be lengthy and uneven with some sectors recovering faster than others, the bank said, striking a note of caution around the path of the recovery with virus cases rising domestically. "And this ongoing slack in the economy is expected to continue to hold inflation down into 2023".

At the same time, the BoC will lengthen the maturity of its purchases.

The Bank stated that such bonds had more influence on borrowing rates for businesses and households.

The bank held its overnight rate target at 0.25 per cent, on Wednesday, but announced it meant to buy more longer-term bonds because those have a "more direct influence on the borrowing rates that are most important for households and businesses".

Policy-makers said the central bank would reduce the size of the programme gradually to a rate of C$4 billion (US$3 billion) a week, down from its current size of C$5 billion.

Other reports by Click Lancashire

Discuss This Article

FOLLOW OUR NEWSPAPER