Interest Rate in Canada
Canada - Interest Rate
Bank of Canada keeps rates unchanged in July meeting, but reduces its QE program
At its meeting on 14 July, 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. That being said, the Bank decided to slow the pace of its quantitative easing program from CAD 3.0 billion of government bonds per week to CAD 2.0 billion per week.
The Bank’s decision to scale back the degree of monetary stimulus was predominately driven by still-recovering economic activity and rising inflationary pressures. The Bank noted economic activity domestically and abroad continued to grow robustly—supported by the ongoing vaccination roll out—even though the recovery remains uneven and the recent spread of new variants of the virus has raised uncertainty around economic output in H2. On the price front, inflation jumped to 3.6% in May, and while some factors seem temporary and core inflation levels remain lower, price pressures are expected to remain relatively elevated ahead due to ongoing supply disruptions and recovering activity.
Moreover, the Bank released updated GDP and inflation forecasts, and now expects GDP to grow 6.0% (April: +6.5% yoy) in 2021. The Bank now sees inflation averaging 3.0% in 2021 (April: +2.3%).
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 reduce its purchases accordingly in line with the strength and durability of the economic recovery.
Commenting on the outlook for monetary policy, Francesco Pesole, FX strategist at ING, noted:
“Our view remains that considering the resilience of the Canadian economy, high vaccination rates, concerns about a booming housing market and government bonds that have dropped quite sharply since mid-May, the BoC remains well on track to end its QE program by the end of the year. We are penciling in the first rate hike in 2H22, but the risks are increasingly skewed towards an earlier move.”
The next meeting is scheduled for 8 September.
FocusEconomics Consensus Forecast analysts see the target for the overnight lending rate ending 2021 at 0.25%. In 2022, our panel sees the policy rate ending the year at 0.47%.
Canada - Interest Rate Data
|Policy Interest Rate (%)||0.50||0.50||1.00||1.75||1.75|
5 years of economic forecasts for more than 30 economic indicators.
Canada Interest Rate Chart
Source: Bank of Canada.
|Bond Yield||1.70||1.00 %||Dec 31|
|Exchange Rate||1.30||0.15 %||Jan 01|
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September 20, 2021
According to the Teranet-National Bank Composite House Price Index, house price growth fell to 1.0% on a month-on-month non-seasonally-adjusted basis in August, from July’s 2.0%.
September 16, 2021
Housing starts ticked down to 260,239 units on a seasonally-adjusted annualized rate (SAAR) basis in August according to the Canada Mortgage and Housing Corporation (CMHC), from July’s 270,744-unit reading.
September 16, 2021
Consumer prices rose a seasonally-adjusted 0.42% over the previous month in August, coming in below July's 0.57% increase.
September 3, 2021
In August, the IHS Markit Manufacturing Purchasing Managers’ Index (PMI) increased to 57.2 from July’s 56.2.
August 31, 2021
GDP decreased 1.1% in seasonally-adjusted annualized terms (SAAR) in the second quarter of 2021, contrasting the 5.5% expansion logged in the first quarter.