Recuperation phase to be slow and choppy
The Bank of Canada is keeping its key policy interest at 0.25 per cent
By ATB Economics 9 September 2020 1 min read
For the fourth time in a row, the Bank of Canada has announced* that it is keeping its key policy interest at 0.25 per cent. The Bank will also continue its quantitative easing program by purchasing at least $5 billion worth of Government of Canada bonds each week.
The Bank’s “Governing Council will hold the policy interest rate at the effective lower bound [of 0.25 per cent] until economic slack is absorbed so that the 2 per cent inflation target is sustainably achieved.”
The economic outlook accompanying the announcement highlights the strong bounce back that occurred as economies reopened, but notes that this will be followed by a “protracted and uneven recuperation phase.”
“Household spending rebounded sharply over the summer, with stronger-than-expected goods consumption and housing activity largely reflecting pent-up demand. There has also been a large but uneven rebound in employment. Exports are recovering in response to strengthening foreign demand, but are still well below pre-pandemic levels. Business confidence and investment remain subdued.”
“While recent data during the reopening phase is encouraging, the Bank continues to expect the recuperation phase to be slow and choppy as the economy copes with ongoing uncertainty and structural challenges.”
The Bank expects inflation to remain soft and below its target of 2 per cent in the near term.
*Each year, the Bank of Canada sets eight fixed dates on which it announces whether or not it will change its policy interest rate. The next announcements are scheduled for October 28 and December 9.