Mortgage Logic

December 9, 2020 Bank of Canada rate announcement

At 10 am EST the Bank of Canada (BoC) made its 10th interest rate decision announcement of the year. Eight scheduled announcements is the norm, but this has been a year of anything but normal.
 
BoC has held the their key overnight lending rate the same at 0.25%, which it calls their “lower bound”, as it has done with each announcement since dropping the rate three times in March of this year. BoC also continues with its massive quantitative easing (QE) program ($4 billion per week) to support market liquidity. Borrowing costs will remain very favourable as 2021 gets underway.

Many economists see all of this as a further sign of low interest rates for the forseeable future.
 
The Bank’s Governing Council acknowledged that Canada’s economic recovery continues to require “extraordinary monetary policy support.” Accordingly, it will hold its policy interest rate at the lower bound until economic capacity is absorbed so that the Bank’s 2% inflation target is sustainably achieved.

In its October projection, the BoC mentioned that the inflation target may be achieved sometime “into 2023″. It provided no further update on this projection. It did however reinforce its commitment to keep interest rates low across the yield curve by using its QE program until the recovery is well underway.

Other highlights of BoC announcement today:

– Economic momentum heading into the fourth quarter appears to be stronger than was expected in October but, in recent weeks, record high cases of COVID-19 in many parts of Canada are forcing re-imposition of restrictions, which can be expected to “weigh on growth in the first quarter of 2021 and contribute to a choppy trajectory until a vaccine is widely available”

– Near term, waves of COVID-19 are expected to “set back recoveries” in many parts of the world
It is maintaining what it calls its “extraordinary forward guidance,” reinforced and supplemented by its QE program, which continues at its current pace of “at least” $4 billion per week

– The labour market continues to recoup the jobs that were lost at the start of the pandemic, albeit at a slower and “highly uneven pace” across different sectors and groups of workers

– Commodity prices, including for oil, are being pushed by up stronger demand

– A broad-based decline in the US exchange rate has contributed to a further appreciation of the Canadian dollar

– The federal government’s recently announced measures should help maintain business and household incomes during this second wave of the pandemic and support the recovery

For more detail please visit the Bank of Canada’s press release: here