BoC leaves its benchmark interest rates at 0.25%; pledges to continue its QE program at a target pace of CAD3 billion per week

The Bank of Canada (BoC) maintained its benchmark interest rates unchanged at 0.25 percent on Wednesday, as expected.

In its policy statement, the Canadian central bank noted:

• With COVID-19 cases falling in many countries and vaccine coverage rising, global economic activity is picking up. Growth remains uneven across regions, however;
• Financial conditions remain highly accommodative, reflected in broadly higher asset prices;
• Commodity prices have risen further, notably oil, and the Canadian dollar has seen a further appreciation;
• Economic developments in Canada have been broadly in line with BoC’s outlook in April Monetary Policy Report (MPR);
• Renewed lockdowns associated with coronavirus third wave are dampening economic activity in the second quarter, largely as anticipated;
• The Canadian economy is expected to rebound strongly, led by consumer spending;
• CPI inflation has risen to around the top of the 1-3 percent inflation-control range, due largely to base-year effects and much stronger gasoline prices; Core measures of inflation have also risen, due primarily to temporary factors and base year effects, but by much less than CPI inflation;
• While CPI inflation will likely remain near 3 percent through the summer, it is expected to ease later in the year, as base-year effects diminish and excess capacity continues to exert downward pressure;
• BoC’s Governing Council judges that there remains considerable excess capacity in the Canadian economy and that 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 percent inflation target is sustainably achieved; this happens sometime in the second half of 2022, according to BoC’s April projection;
• BoC is continuing its QE program to reinforce this commitment and keep interest rates low across yield curve;
• Decisions regarding adjustments to the pace of net bond purchases will be guided by Governing Council’s ongoing assessment of strength and durability of recovery;
• We will continue to provide appropriate degree of monetary policy stimulus to support recovery and achieve inflation objective.