On April 21, 2021, the Bank of Canada announced that it was keeping its key interest rate at 0.25% with the Bank Rate at 0.50% and the deposit rate at 0.25%. BOC announced that they will continue to keep rates low until inflation returns to its sustainable 2% target. However, the Bank also announced that it will be easing and adjusting its quantitative easing (QE) program from the target of $4 billion to $3 billion. The QE program was designed to aid the economy during the stress brought on by the global pandemic.
The Bank noted that while the economic outcomes nationally and internationally have improved, there is much uncertainty surrounding outbreaks, variants and vaccine rollouts. Economic recovery will be ongoing while this uncertainty continues to hang overhead. That being said, over the course of the year as vaccine rollouts continue and the economy begins to reopen, consumption is expected to rise. However positive that is, it will still take time for the economy to properly recover. But the Bank is positive in its outlook and estimates that Canada’s economy will be a lot stronger later this year than initially anticipated, estimating that the inflation rate should return to 2% in the later half of 2022 rather than its initial prediction of 2023.
What all this means is that with an accelerated reopening and the QE program winding down, higher interest rates may be on the way sooner than expected. Since April 14, 2021, the benchmark five-year lending rate was 4.79%. The Office of Superintendent of Financial Institutions is currently underway to raise the qualifying rate to 5.25% on uninsured mortgages in May, a move that the Bank is in favour of to cool the overheated market.
But caution is advised as Canada continues to battle the deadly third wave of Covid-19, particularly in the hardest-hit sectors of the economy such as restaurants and small businesses that have been forced into curb-side pickup or closures. These sectors are an area of concern as recovery is difficult to predict with such unprecedented job losses last year.
The next announcement from Bank of Canada is scheduled for June 9, 2021.
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