Canada Monetary Policy October 2021


Canada: Bank of Canada keeps rates unchanged in October meeting; ends QE purchasing program

October 27, 2021

At its meeting on 27 October, 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. The Bank also decided to end its quantitative easing program and will move into a reinvestment phase, buying government bonds to replace maturing ones.

The Bank’s decision to keep the target for the overnight rate unchanged was predominately driven by still-recovering economic activity, with lingering supply-related bottlenecks weighing on momentum. The Bank noted that economic activity domestically and abroad has continued to grow robustly—supported by the ongoing vaccine rollout—although the recovery remains uneven across sectors and employment groups. On the price front, inflation has remained elevated in recent weeks, and some factors previously deemed to be temporary are now expected to keep inflation high for a longer period, mainly due to ongoing supply disruptions and recovering activity.

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”. The Bank’s latest estimates see this occurring sometime in the middle of 2022. This is broadly in line with our panelists’ projections, with the majority seeing the first rate hike in 2022.

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

“The BoC thinks excess production capacity could be absorbed by the second or third quarter of 2022. This forecast is in line with ours concerning the first key rate hike in Canada that we recently moved forward from October 2022 to July 2022. Still, there’s a lot of uncertainty, and determining how much excess capacity actually exists is difficult under the current circumstances.”

The next meeting is scheduled for 8 December.

FocusEconomics Consensus Forecast analysts see the target for the overnight lending rate ending 2022 at 0.75%. In 2023, our panel sees the policy rate ending the year at 1.52%.

Author:, Economist

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Canada Monetary Policy Chart

Canada Monetary Policy October 2021

Note: Target for the Overnight Rate in %.
Source: Bank of Canada (BoC).

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