BANK OF CANADA MAKES INTEREST RATE ANNOUNCEMENT
September 8th, 2021
Bank Of Canada's Overnight Rate
On September 8, the Bank of Canada maintained its target for the overnight benchmark rate at 0.25%
The Bank of Canada announced that it will continue to hold its key interest rate target at 0.25%, unchanged since March 2020 when a trio of rate cuts were implemented to boost the economy in light of the hard-hitting impacts of COVID-19.
The world economy continued its slow but steady recovery through the spring and summer, with the US leading the charge. However, the Bank notes supply chain disruptions are limiting activity across some industries, and the fourth wave of COVID-19 in many regions threatening the global recovery.
In the second quarter, Canada’s economy contracted by one per cent, thanks to fewer exports, which the Bank has attributed in part to supply chain disruptions, notably in the auto industry. Meanwhile, the housing market has eased somewhat from the record-high levels seen earlier this year, which was expected. On the up side, consumption, business investment and government spending have all led to a three-per-cent uptick in domestic demand.
There were also more jobs in June and July, although the Bank notes that some sectors continue to lag, and low-wage workers continue to be disproportionately impacted.
Looking forward, the Bank expects that the economy will continue to grow in the second half of the year but cautions that the fourth wave of COVID-19 and continuing supply issues could dampen recovery.
Bank of Canada’s 2021 Schedule for Policy Interest Rate Announcements
Bank of Canada announces its decision for the overnight rate target eight times a year, typically on a Wednesday. The schedule for 2021 is as follows:
- January 20
- March 10
- April 21
- June 9
- July 14
- September 8
- October 27
- December 8
The next interest rate announcement is scheduled for October 27, 2021.
“Bank of Canada today held its target for the overnight rate…”
Read the release below:
The Bank of Canada today held its target for the overnight rate at the effective lower bound of ¼ %, with the Bank Rate at ½ % and the deposit rate at ¼ %. 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 is being maintained at a target pace of $2 billion per week.
The global economic recovery continued through the second quarter, led by strong US growth, and had solid momentum heading into the third quarter. However, supply chain disruptions are restraining activity in some sectors and rising cases of COVID-19 in many regions pose a risk to the strength of the global recovery. Financial conditions remain highly accommodative.
In Canada, GDP contracted by about 1 percent in the second quarter, weaker than anticipated in the Bank’s July Monetary Policy Report (MPR). This largely reflects a contraction in exports, due in part to supply chain disruptions, especially in the auto sector. Housing market activity pulled back from recent high levels, largely as expected. Consumption, business investment and government spending all contributed positively to growth, with domestic demand growing at more than 3%. Employment rebounded through June and July, with hard-to-distance sectors hiring as public health restrictions eased. This is reducing unevenness in the labour market, although considerable slack remains and some groups – particularly low-wage workers – are still disproportionately affected. The Bank continues to expect the economy to strengthen in the second half of 2021, although the fourth wave of COVID-19 infections and ongoing supply bottlenecks could weigh on the recovery.
CPI inflation remains above 3% as expected, boosted by base-year effects, gasoline prices, and pandemic-related supply bottlenecks. These factors pushing up inflation are expected to be transitory, but their persistence and magnitude are uncertain and will be monitored closely. Wage increases have been moderate to date, and medium-term inflation expectations remain well-anchored. Core measures of inflation have risen, but by less than the CPI.
The Governing Council judges that the Canadian economy still has considerable excess capacity, and that the recovery continues to require extraordinary monetary policy support. We 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. In the Bank’s July projection, this happens in the second half of 2022. The Bank’s QE program continues to reinforce this commitment and keep interest rates low across the yield curve. Decisions regarding future adjustments to the pace of net bond purchases will be guided by Governing Council’s ongoing assessment of the strength and durability of the recovery. We will continue to provide the appropriate degree of monetary policy stimulus to support the recovery and achieve the inflation objective.
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