A woman walks past the Bank of Canada building, in Ottawa, Wednesday, Sept. 6, 2017. The Bank of Canada will say this morning what it will do with its key interest rate at a time when there is very little economic drama for the first time in years. THE CANADIAN PRESS/Adrian Wyld

A woman walks past the Bank of Canada building, in Ottawa, Wednesday, Sept. 6, 2017. The Bank of Canada will say this morning what it will do with its key interest rate at a time when there is very little economic drama for the first time in years. THE CANADIAN PRESS/Adrian Wyld

Bank of Canada keeps key interest rate target on hold but warns of ‘slow, choppy’ recovery

The bank says its key rate will stay at near-zero until economic slack is absorbed

The Bank of Canada sought Wednesday to temper economic excitement about a sharper-than-expected rebound from the depths of the COVID-19 crisis, pointing to worrying trends that signal all is still not well.

In a statement, the central bank’s governing council said the bounce-back activity in the third quarter looks to be faster than it anticipated in July, as provinces opened up their economies even more over the summer.

Household spending spiked over the summer as a result of pent-up spending demand from previous months as some households had money to spend, but nowhere to spend it with businesses closed.

Also helping things along has been massive government spending to support those whose incomes dried up, the statement said.

But the bank warned of indicators that point to a slow and choppy recovery process.

The rebound in employment has been uneven, particularly for mothers with young children, visible minorities, students and low-wage workers. Energy price remain weak. Exports have gone up in line with foreign demand, but remain below pre-pandemic levels, the bank said, while business confidence and investment remain subdued.

“While recent data during the reopening phase is encouraging, the bank continues to expect the recuperation phase to be slow and choppy as the economy copes with ongoing uncertainty and structural challenges,” the statement said.

Governor Tiff Macklem is scheduled to speak on Thursday to the Canadian Chamber of Commerce about the uneven effects the COVID-19 pandemic has had on different sectors and groups of people.

What won’t change for some time is the central bank’s key interest rate, which was held Wednesday at 0.25 per cent.

The central bank’s key rate has remained at its lower effective bound since March when COVID-19 lockdowns plunged the economy into crisis and pushed inflation below the bank’s two-per-cent target.

Inflation is running close to zero, driven down from low gasoline prices and drops in travel spending.

The bank said inflation will remain below its two-per-cent comfort zone “in the near term,” meaning the key rate will stay at near-zero until economic slack is absorbed and its inflation target is “sustainably achieved.”

“That’s a situation which we see as not materializing until years into the future,” CIBC senior economist Royce Mendes wrote in a note.

The statement reiterated that the central bank stands ready to do whatever is necessary to aid the economy as it recuperates from the COVID-19 crisis, which will include ongoing purchases of federal government bonds.

Experts noted that the bank’s language on its quantitative easing efforts, which is a way for central banks to push money into the economy to encourage lending and investment.

The bank’s statement said its “QE” efforts will be adjusted to provide whatever monetary stimulus is needed to help the economy recover, and bring inflation back on target.

“It’s crystal clear that road to a full recovery and a closing of the output gap will a very long one,” wrote Benjamin Reitzes, BMO’s director of Canadian rates and macro strategist, adding it will likely take years.

The Bank of Canada will provide a more detailed analysis of its long-run assumptions for the domestic economy when it updates its monetary policy outlook later next month.

ALSO READ: B.C. records 429 new COVID-19 cases, two deaths over Labour Day long weekend

Jordan Press, The Canadian Press


Like us on Facebook and follow us on Twitter.

Want to support local journalism during the pandemic? Make a donation here.

Coronaviruseconomy

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Keith Thorpe/Peninsula Daily News
Search called off for small plane that went down in rough water south of Victoria

Plane bound for Port Angeles from Alaska believed to have one occupant, an Alaskan pilot

Royal B.C. Museum conservator Megan Doxsey-Whitfield kneels next to a carved stone pillar believed to have significance as a First Nations cultural marker by local Indigenous people. The pillar was discovered on the beach at Dallas Road last summer. Museum curatorial staff have been working with Songhees and Esquimalt Nation representatives to gain a clearer picture of its use. (Photo courtesy Royal BC Museum)
Stone carving found on Victoria beach confirmed as Indigenous ritual pillar

Discussion underway with the Esquimalt and Songhees about suitable final home for the artifact

The Save-On-Foods Memorial Centre will once again be transformed into temporary sheltering for 45 individuals starting in March. (Courtesy of the B.C. Government)
Temporary shelter to resume at Victoria Save-On-Foods arena in March

BC Housing signed lease with GSL Group from Feb. 1 to May 30

A property at 1224 Richardson St. in Victoria is the subject of a rezoning application that seeks permission to build three low-rise buildings with 24 units, including four that would rent for below market rate. (Google Streetview)
Victoria development in Fairfield features subsidized housing element

Public hearings this Thursday (Jan. 28) for proposals on Richardson Street and Heywood Avenue

Leila Bui with her parents Tuan (left) and Kairry Nguyen on Jan. 27, 2020 after Tenessa Nikirk was found guilty for striking Bui in a Saanich crosswalk. (Nina Grossman/News Staff)
Driver convicted of dangerous driving after hitting Leila Bui out on bail

Tennesa Nikirk was convicted for striking then 11-year-old Leila Bui with her car

British Columbia Health Minister Adrian Dix looks on as Provincial Health Officer Dr. Bonnie Henry addresses the media during a news conference at the BC Centre of Disease Control in Vancouver B.C. (THE CANADIAN PRESS/Jonathan Hayward)
B.C. announces 485 new COVID-19 cases, fewest deaths in months

‘The actions we take may seem small, but will have a big impact to stop the virus,” urges Dr. Henry

Anyone with information on any of these individuals is asked to call 1-800-222-TIPS (8477) or visit the website victoriacrimestoppers.ca for more information.
Greater Victoria Crime Stoppers wanted list for the week of Jan. 26

Greater Victoria Crime Stoppers is seeking the public’s help in locating the… Continue reading

(B.C. government photo)
POLL: Would you like to see restrictions on travel to B.C. from other provinces?

With a host of more virulent strains of COVID-19 appearing across the… Continue reading

Former Vancouver Giants forward Evander Kane is seen here in Game 7 of the second round of the 2009 WHL playoffs against the Spokane Chiefs (Sam Chan under Wikipedia Commons licence)
Gambling debts revealed in details of bankruptcy filing by hockey star Evander Kane

Sharks left winger and former Vancouver Giants player owes close to $30 million total

Othman “Adam” Hamdan, pictured in front of Christina Lake’s Welcome Centre, was acquitted of terrorism related charges in 2017. He has been living in Christina Lake since November 2020. Photo: Laurie Tritschler
Man acquitted on terrorism charges awaits deportation trial while living in Kootenays

Othman Ayed Hamdan said he wants to lead a normal life while he works on his upcoming book

B.C. Premier John Horgan wears a protective face mask to help prevent the spread of COVID-19 prior to being sworn in by The Honourable Janet Austin, Lieutenant Governor of British Columbia during a virtual swearing in ceremony in Victoria, Thursday, November 26, 2020. THE CANADIAN PRESS/Jonathan Hayward
Premier Horgan calls jumping COVID vaccine queue ‘un-Canadian’

Horgan says most people in B.C. are doing their best to follow current public health guidelines

Prime Minister Justin Trudeau, left, and Vancouver Mayor Kennedy Stewart share a laugh while speaking to the media before sitting down for a meeting at City Hall, in Vancouver, on Friday August 30, 2019. (THE CANADIAN PRESS/Darryl Dyck)
Vancouver mayor, Health Canada to formally discuss drug decriminalization

Kennedy Stewart says he’s encouraged by the federal health minister’s commitment to work with the city

Downtown Fernie is pictured after a snowfall.
B.C. Premier John Horgan speaks at B.C. legislature on the province’s mass vaccination plan for COVID-19, Jan. 22, 2021. (B.C. government)
COVID-19 quarantine not an option for B.C., John Horgan says

Apres-ski parties increase risk, not interprovincial travel

Most Read