Canada: Bank of Canada keeps monetary policy unchanged at June meeting
June 9, 2021
At its meeting on 9 June, the Bank of Canada (BoC) held its target for the overnight rate at 0.25%—its effective lower bound—in line with market analysts’ expectations. Moreover, the Bank decided to maintain the pace of its quantitative easing program at CAD 3.0 billion of government bonds per week, having reduced it from CAD 4.0 billion per week at its previous meeting in April.
The Bank’s decision came amid an improving economic background and within-range inflation expectations. The Bank noted consumer spending had risen more than expected in Q1 on the back of increasing confidence and resilient demand, while price pressures are seen easing from current elevated levels. After hitting 3.4% in April, inflation is expected to sit towards the midpoint of the Bank’s 1.0%–3.0% target range in the second half of the year. As such, the BoC decided it had space to deploy a wait-and-see approach.
Looking ahead, the BoC is committed to keeping its target for the overnight rate at its effective lower bound until “economic slack is absorbed so that the 2.0 percent inflation target is sustainably achieved”. In terms of its quantitative easing program, the BoC stated that it will continue to adjust its purchases accordingly in line with the strength and durability of the economic recovery.
Commenting on the outlook for monetary policy, Sri Thanabalasingam, senior economist at TD Economics, noted:
“The Bank previously tapered the QE program in April, and with only one additional month of data since then, there was less appetite to make another adjustment to monetary policy. However, the Bank left room for changes in upcoming meetings. As noted in today's statement, the vaccination rollout is progressing extremely well in Canada, and provinces are reopening their economies. A strong rebound in domestic demand could leave the Bank with little choice but to further taper the QE program in upcoming meetings.”
The next meeting is scheduled for 14 July.
Author: Stephen Vogado, Economist