BoC leaves its benchmark interest rates at 0.25%; keeps pace of its QE program unchanged at CAD2 billion per week

The Bank of Canada (BoC) maintained its benchmark interest rates unchanged at 0.25 percent on Wednesday, as widely expected. The Bank also kept the pace of its quantitative easing (QE) program unchanged at CAD2 billion per week.

In its policy statement, the Canadian central bank noted:

• Global economic recovery continued through Q2;
• Supply chain disruptions are restraining activity in some sectors and rising cases of COVID-19 in many regions pose risk to the strength of global recovery;
• Canada’s GDP contracted by about 1 percent in Q2, reflecting mainly a contraction in exports, due in part to supply chain disruptions, especially in auto sector;
• Housing market activity pulled back from recent high levels, largely as expected;
• Employment rebounded through June and July, with hard-to-distance sectors hiring as public health restrictions eased;
• BoC continues to expect the economy to strengthen in H2, although the fourth wave of COVID-19 infections and ongoing supply bottlenecks could weigh on recovery;
• CPI inflation remains above 3 percent as expected
• Factors pushing up inflation are expected to be transitory, but their persistence and magnitude are uncertain and will be monitored closely;
• Medium-term inflation expectations remain well-anchored;
• Governing Council judges that Canada’s economy still has considerable excess capacity, and that recovery continues to require extraordinary monetary policy support;
• We remain committed to holding the policy interest rate at effective lower bound until economic slack is absorbed so that 2 percent inflation target is sustainably achieved. In BoC's July projection, this happens in H2 of 2022;
• Decisions regarding future 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.