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Canada Monetary Policy March 2021

Canada: Bank of Canada keeps rates unchanged in March; maintains asset purchasing program

On 10 March, the Bank of Canada (BoC) kept 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 its quantitative easing program at its current pace of at least CAD 4.0 billion per week.

The Bank’s decision to stay put was mainly aimed at supporting the ongoing economic recovery. The BoC noted that the economy fared relatively well in the fourth quarter of last year, despite the reimposition of lockdown measures in some parts of the country in November. Strong government stimulus measures, pent-up household demand and solid progress on the vaccine front should support activity over the medium term, but in the short term the recovery remains uneven across sectors and employment groups. On the price front, stronger oil prices pushed inflationary pressures closer to the lower bound of the Bank’s 1.0%–3.0% target range in January, but ongoing economic slack and a stronger CAD have kept inflation well below the 2.0% midpoint.

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 percent inflation target is sustainably achieved”. Our panelists largely share the Bank’s projection that the policy rate will remain at its current level until at least 2023. In terms of its quantitative easing program, the BoC will maintain its purchases until the economic recovery is well underway, and it will adjust them accordingly to ensure inflation is sustained at its target level.

Commenting on the outlook for monetary policy, Benoit P. Durocher, senior economist at Desjardins Group, noted:

“Under these circumstances, the BoC could start to adopt a different tone concerning the way it’s managing its monetary policy in the next few months. Of course, we won’t see higher key interest rates and an end to its asset purchases in the short term, but the BoC could start to lay the groundwork. For example, it could soon decide to taper its asset purchase program on the financial markets.”

The next meeting is scheduled for 21 April.

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