Bank of Canada keeps policy rate the same
Canada’s real GDP shrank by 2.1 per cent in the first quarter of 2020 and will likely show a further decline of 10-20 per cent in the second quarter
By ATB Economics 3 June 2020 1 min read
After cutting its key policy interest rate (a.k.a. the target for the overnight rate) three times in March to bring it down to 0.25 per cent, the Bank of Canada announced today that it’s leaving the rate as is for now.
This is good news for borrowers as the policy rate sets the benchmark for other interest rates.
But perhaps the bigger story coming out of today’s announcement is the “Canadian economy appears to have avoided the most severe scenario” and the negative impact of the pandemic has likely peaked.
The severe scenario anticipated “long-lasting damage to the productive capacity of the Canadian economy, with scarring effects from persistent unemployment and firm destruction.”
Unfortunately, avoiding the worst outcome doesn’t mean that the economic pain is over with the global economic recovery expected to be “protracted and uneven.”
In addition, Canada’s real GDP shrank by 2.1 per cent in the first quarter of 2020 and will likely show a further decline of 10-20 per cent in the second quarter, “as continued shutdowns and sharply lower investment in the energy sector take a further toll on output.”
There is, however, some light at the end of the tunnel: “While the outlook for the second half of 2020 and beyond remains heavily clouded, the Bank expects the economy to resume growth in the third quarter.”