Interest rates to stay low as Canada faces “long exit” from COVID-19 hole, says central bank

0
122


The central bank of Canada has chosen to keep its benchmark interest rate where it was on Wednesday at 0.25%.This is the first-rate decision under the leadership of Tiff Macklem, who took office as governor of the Bank of Canada last month after the end of Stephen Poloz’s seven-year term.

The final months of Poloz’s term have been marked by a sudden and dramatic series of rate cuts, with central banks around the world moving in unison to cut lending rates to near zero to encourage borrowing and l investment to stimulate the economy plagued by the COVID-19 pandemic.

The bank’s rate decision suggests that there are no short-term plans to deviate from this strategy in the near future.

“It’s going to be a long climb,” Macklem said at a press conference after the announcement on Wednesday. “We are particularly clear that interest rates are going to be unusually low for a long time. “

A move was expected

The decision was in line with the expectations of economists who monitor the central bank interviewed by Bloomberg. The bank’s next decision is scheduled for September 9, and no changes are expected at this meeting either.

In addition to the interest rate decision, the bank also released its quarterly monetary policy report, which outlines the bank’s outlook for the economy.

The bank calculates that blockages and other physical distancing efforts across Canada between April and June have reduced Canada’s GDP by about 15%.

This is the worst quarter for Canada’s economy since the Great Depression, but it is actually better than the worst scenario the bank followed at the start of the pandemic.

“There are early signs that the reopening of businesses and pent-up demand are leading to a first rebound in employment and production,” the bank said.

Economy will not return to normal until 2022

For 2020 as a whole, the central bank now predicts that the Canadian economy will contract by 7.8%, then rebound by 5.1% in 2021 and 3.7% in 2022.

While this is better than it could have been, it does mean that the central bank does not expect the economy to return to normal for another two years.

The Bank of Canada lowered its benchmark interest rate to stimulate the economy in the wake of COVID-19. (Scott Galley / CBC)

And these prospects rest on a rather uncertain development: it assumes that the Canadian economy will be spared by a second wave of COVID-19.

“We assumed there was no general second wave and therefore there was no general second lock,” said Macklem. “But we anticipate there will be localized pushes and localized restrictions. ”

Sherry Cooper, chief economist at the Dominion Lending Centers, says that opinion may be overly optimistic.

“The past few weeks have shown that the numbers can rebound even faster than the numbers have dropped and a second wave is a very real possibility in the fall,” said Cooper.

In addition to signaling that it has no plans to change rates in the near future, the bank also said it plans to continue its bond purchase programs to support credit markets. .

TD Bank economist Brian DePratto said there were “no surprises” in the bank’s decision.

“With uncertainty still extremely high, the Bank of Canada takes no risks, maintains its stimulus package and reminds us again that it can and will do more to support the economy if necessary.”

LEAVE A REPLY

Please enter your comment!
Please enter your name here