Bank of Canada Reaffirms Existing Monetary Policy Settings

March 10, 2021

When the pandemic struck a year ago, the Bank of Canada’s Governing Council compressed the reduction of its overnight policy rate into a trio of 50-basis point cuts all in March to the record low of 0.25%, which it considers an “effective lower bound.” Additional stimulus has been provided by a program of asset purchases. At this week’s second scheduled policy review of 2021, officials reaffirmed the 0.25% , and maintained forward guidance that the rate is unlikely to get raised until into 2023. Today’s released statement also kept the current C$ 4 billion weekly pace of asset purchases and pledged to continue quantitative easing “until recovery is well underway,” although the size of QE may be adjusted when and as required.

The statement is upbeat about recent economic conditions. GDP expanded at a 9.6% annualized rate between 3Q and last quarter, and a likely contraction, which had been projected at the time of the January policy review, has been rescinded. That said, officials go on to observe continuing considerable Covid-related uncertainty and economic slack that warrant “extraordinary monetary policy support.” A likely near-term rise of inflation toward the top of the 1-3% target corridor will stem from temporary factors, and like many other central bankers, including those at the Fed, will not compel officials to tighten policy.

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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