BoC leaves its benchmark interest rates at 0.25%; pledges to continue QE program at its current pace of at least CAD4 billion per week

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

In its policy statement, the Canadian central bank noted:

• Canada’s economy is proving to be more resilient than anticipated to second wave of Covid and associated containment measures;
• GDP growth in Q1 is now expected to be positive, rather than contraction forecast in January;
• Consumers and businesses are adapting to containment measures, and housing market activity has been much stronger than expected; improving foreign demand and higher commodity prices have also brightened the prospects for exports and business investment;
• Despite stronger near-term outlook, there is still considerable economic slack and uncertainty about evolution of the virus and economic growth;
• Labour market is long way from recovery;
• Spread of more transmissible variants of the virus poses largest downside risk to activity;
• CPI inflation is near the bottom of 1-3 percent target band but is likely to move temporarily to around top of the band in next few months due to base-year effects;
• While economic prospects have improved, BoC’s Governing Council judges that recovery continues to require extraordinary monetary policy support;
• We remain committed to holding policy interest rate at the effective lower bound until economic slack is absorbed so that 2 percent inflation target is sustainably achieved (BoC’s January projection suggests this does not happen until into 2023);
• To reinforce this commitment and keep interest rates low across the yield curve, BoC will continue its QE program until recovery is well underway;
• As Governing Council continues to gain confidence in the strength of recovery, the pace of net purchases of Government of Canada bonds will be adjusted as required;
• We will continue to provide the appropriate degree of monetary policy stimulus to support the recovery and achieve the inflation objective.