BoC maintains its benchmark interest rates at 0.25%; pledges to maintain current level of policy rate until economic slack is absorbed and inflation objective is achieved

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

In its policy statement, the Canadian central bank noted:

• It is to continue its quantitative easing (QE) program, with large-scale asset purchases of at least $5 billion per week of Government of Canada bonds;
• It stands ready to adjust its programs if market conditions warrant;
• Global and Canadian outlook is extremely uncertain, given the unpredictability of the course of the COVID-19 pandemic;
• Global economy is expected to shrink by about 5 percent in 2020 and then to grow by around 5 percent on average in 2021 and 2022;
• Canadian economy is starting to recover as it re-opens from the shutdowns needed to limit the virus spread;
• Q2 economic activity is estimated to have been 15 percent below its level at the end of 2019;
• Q2 decline in economic activity is considerably less severe than the worst scenarios presented in the April MPR;
• Decisive and necessary fiscal and monetary policy actions have supported incomes and kept credit flowing, cushioning fall and laying foundation for recovery;
• Roughly 40 percent of the collapse in H1 is seen to be made up in Q3, but then economy’s recuperation is expected to slow as the pandemic continues to affect confidence and consumer behaviour and as economy works through structural challenges;
• Real GDP is expected to decline by 7.8 percent in 2020 and resume with growth of 5.1 percent in 2021 and 3.7 percent in 2022;
• Inflation is expected to remain weak before gradually strengthening toward 2 percent as drag from low gas prices and other temporary effects dissipates and demand recovers, reducing economic slack;
• Governing Council will hold policy interest rate at effective lower bound until economic slack is absorbed so that 2-percent inflation target is sustainably achieved;
• To support the recovery and achieve the inflation objective, BoC is prepared to provide further monetary stimulus as needed.