Bank of Canada update – 09/12/2020

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Bank of Canada update – 09/12/2020
Bank of Canada update – 09/12/2020

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The Bank of Canada has left its benchmark rate at 0.25% in its final policy decision of 2020. This move aims to keep borrowing costs low for Canadians, supporting the economy through ongoing challenges posed by COVID-19. The Bank also reinforced its commitment to market liquidity through its quantitative easing program, while noting stronger-than-expected economic momentum tempered by recent COVID-19 restrictions.

This morning in its 10th and likely final policy decision of 2020, the Bank of Canada left its target overnight benchmark rate unchanged at what it describes as its “lower bound” of 0.25%. As a result, the Bank Rate stays at 0.5% and the knock-on effect is that borrowing costs for Canadians will remain low for the foreseeable future.


The Bank also updated its observations on the state of the economy, both in Canada and globally and pledged to continue to support market liquidity through its quantitative easing program.

These are the highlights of today’s BoC announcement:

  • Economic momentum heading into the fourth quarter appears to be stronger than was expected in October but, in recent weeks, record high cases of COVID-19 in many parts of Canada are forcing re-imposition of restrictions, which can be expected to “weigh on growth in the first quarter of 2021 and contribute to a choppy trajectory until a vaccine is widely available”.
  • Near term, waves of COVID-19 are expected to “set back recoveries” in many parts of the world.
  • It is maintaining what it calls its “extraordinary forward guidance,” reinforced and supplemented by its QE program, which continues at its current pace of “at least” $4 billion per week.
  • The labour market continues to recoup the jobs that were lost at the start of the pandemic, albeit at a slower and “highly uneven pace” across different sectors and groups of workers.
  • Commodity prices, including for oil, are being pushed by up stronger demand.
  • A broad-based decline in the US exchange rate has contributed to a further appreciation of the Canadian dollar.
  • The federal government’s recently announced measures should help maintain business and household incomes during this second wave of the pandemic and support the recovery.

Of note, the BoC commented on a pick up – to 0.7% – in CPI inflation in October, largely reflecting higher prices for fresh fruits and vegetables. This suggests a “slightly firmer track for inflation” in Q4 but measures of core inflation are all below 2%, and “considerable economic slack” is expected to continue to “weigh on inflation for some time.”

Looking Ahead

The Bank’s Governing Council acknowledged that Canada’s economic recovery continues to require “extraordinary monetary policy support.” Accordingly, it will hold its policy interest rate at the lower bound until economic slack is absorbed so that the Bank’s 2% inflation target is sustainably achieved.

In its October projection, the BoC suggested that the inflation target may be achieved “into 2023.” It provided no further update on this projection. It did however reiterate its commitment to keep interest rates low across the yield curve by using its QE program until the recovery is well underway.

BoC’s next scheduled policy announcement is January 20, 2021.

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A note

From Cam Wilson:

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