BoC leaves its benchmark interest rates at 0.25%; continues its QE program

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:

• It is maintaining its extraordinary forward guidance, reinforced and supplemented by its QE program, which continues at its current pace of at least CAD4 billion per week;
• Uncertainty is still elevated, and outlook remains highly conditional on the path of the virus and the timeline for the effective rollout of vaccines;
• Arrival of effective vaccines combined with further fiscal and monetary policy support have boosted medium-term outlook for growth;
• BoC projects global growth to average just over 5 percent per year in 2021 and 2022, before slowing to just under 4 percent in 2023;
• Global financial markets and commodity prices have reacted positively to improving economic prospects;
• Broad-based decline in US exchange rate combined with stronger commodity prices have led to further appreciation of Canadian dollar;
• Resurgence of coronavirus cases and reintroduction of lockdown measures are serious setback; growth in Q1 is expected to be negative;
• Q2 rebound is expected to be strong;
• BoC sees decline in real GDP of 5.5 percent in 2020 to be followed by +4 percent in 2021 and almost +5 percent in 2022, and around +2.5 percent in 2023;
• CPI inflation is forecast to rise temporarily to around 2 percent in the first half of the year;
• Inflation is expected to return sustainably to 2 percent target in 2023;
• Governing Council will hold its policy interest rate at effective lower bound until economic slack is absorbed so that 2 percent inflation target is sustainably achieved. In our projection, this does not happen until into 2023;
• To reinforce this commitment and keep interest rates low across yield curve, Bank will continue its QE program until the recovery is well underway;
• As Governing Council gains confidence in strength of recovery, the pace of net purchases of Government of Canada bonds will be adjusted as required;
• We remain committed to providing appropriate degree of monetary policy stimulus to support recovery and achieve inflation objective