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Ekonomické zprávy
27.10.2021

BoC leaves its benchmark interest rates at 0.25%; unexpectedly ends quantitative easing

The Bank of Canada (BoC) maintained its benchmark interest rates unchanged at 0.25 percent on Wednesday, as widely expected. The Bank also slowed the pace of its quantitative easing (QE) program to CAD0 billion per week from CAD2 billion per week; economists expected the pace to be slowed to CAD1 billion per week.

In its policy statement, the Canadian central bank noted:

  • Its extraordinary forward guidance on path for overnight rate is being maintained
  • It is ending quantitative easing (QE) and moving into the reinvestment phase, during which it will purchase Government of Canada bonds solely to replace maturing bonds;
  • It projects global GDP to grow by 6.5 percent in 2021 - a strong pace but less than projected in July - and by 4.25 percent in 2022 and about 3.5 percent in 2023;
  • It forecasts Canada’s economy to grow by 5 percent this year before moderating to 4.25 percent in 2022 and 3.75 percent in 2023;
  • Demand is expected to be supported by strong consumption and business investment, and rebound in exports as U.S. economy continues to recover;
  • Shortages of manufacturing inputs, transportation bottlenecks, and difficulties in matching jobs to workers are limiting the economy’s productive capacity; although the impact and persistence of these supply factors are hard to quantify, output gap is likely to be narrower than BoC had forecast in July;
  • Recent increase in CPI inflation was anticipated in July, but main forces pushing up prices - higher energy prices and pandemic-related supply bottlenecks - now appear to be stronger and more persistent than expected;
  • Core measures of inflation have also risen, but by less than CPI;
  • BoC now expects CPI inflation to be elevated into next year, and ease back to around the 2 percent target by late 2022;
  • BoC is closely watching inflation expectations and labour costs to ensure that temporary forces pushing up prices do not become embedded in ongoing inflation
  • Governing Council judges that in view of ongoing excess capacity, the economy continues to require considerable monetary policy support;
  • BoC remains committed to holding the policy interest rate at effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved. In Bank’s projection, this happens sometime in middle quarters of 2022
  • In light of progress made in the economic recovery, Governing Council has decided to end quantitative easing and keep its overall holdings of Government of Canada bonds roughly constant

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