The Bank of Canada held its target today for the overnight rate at the effective lower bound of 0.25%, with the Bank Rate at 0.5% and the deposit rate at 0.25%. The Bank is maintaining its extraordinary forward guidance on the path for the overnight rate. This is reinforced and supplemented by the Bank's quantitative easing (QE) program which continues at a target pace of $3 billion per week.
With vaccinations increasing and COVID cases falling, the global economic activity is picking up and the Canadian economy is expected to rebound strongly, led by consumer spending. Housing market activity is expected to moderate but remain elevated.
As expected, CPI inflation has risen to around the top of the 1-3 percent inflation-control range, largely due to base-year effects and much stronger gasoline prices. While CPI inflation will likely remain near 3% through the summer, it's expected to ease later in the year, as base-year effects diminish and excess capacity continues to exert downward pressure.
The Governing Council believes that there remains considerable excess capacity in the Canadian economy and that the recovery continues to require extraordinary monetary policy support. They remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2% inflation target is sustainably achieved (sometime in the second half of 2022 as per the Bank's April projection).
The Bank is continuing its QE program to reinforce this commitment and keep interest rates low and will continue to provide the appropriate degree of monetary policy stimulus to support the recovery and achieve the inflation objective.
If you'd like to learn more or if you have any questions, please feel free to message us and we'd be glad to help!