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Bank of Canada commits to keeping benchmark rate at 0.25% during COVID-19 recovery,,on September 9, 2020 at 2:20 pm
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Bank of Canada commits to keeping benchmark rate at 0.25% during COVID-19 recovery,,on September 9, 2020 at 2:20 pm

The Bank of Canada says the economic recovery from COVID-19 will need help from policymakers, which is why the central bank is committing to keeping its benchmark interest rate at 0.25 per cent for as long as necessary.

The move to keep the bank’s benchmark rate — known as the target for the overnight rate — was exactly what economists had been expecting, and the bank explained its rationale by noting that all signs suggest the economy is recovering just about how the bank predicted it would in July, when it made its last interest rate decision.

Like most other countries, Canada’s economy fell into a deep freeze in March when COVID-19 prompted widespread lockdowns. But as things slowly began to reopen in May and through the summer months, the economy began to recover too.

While economic indicators such as GDP and the job market have yet to get back to where they were before, they do seem to be headed there. Which is why the bank says it stands ready to do whatever it can do to help that process along by making sure that interest rates remain low so that businesses can get the money they need to borrow and invest to grow.

While COVID-19 cases continue to grow at a rapid pace in the United States, the economy there is recovering a bit better than expected, the bank noted, which is good news for Canada’s economy since so much of what Canada makes is ultimately sold to the U.S. But oil prices remain low, which is slowing things down a little for Canada’s economic recovery.

Added up, the bank says the economic recovery seems to be going slightly better than it anticipated in July, but the outlook is still very much uncertain.

“The bank continues to expect this strong reopening phase to be followed by a protracted and uneven recuperation phase, which will be heavily reliant on policy support,” the bank said. “Monetary policy is working to support household spending and business investment by making borrowing more affordable.”

The bank’s interest rate policy is the one that consumers tend to pay the most attention to since it impacts rates they get for things like mortgages and savings accounts at banks, but the central bank has other ways of influencing the economy behind the scenes, too.

One such policy is a recent one where the bank agreed to buy up bonds and other assets from banks to stabilize their balance sheets in a process known as quantitative easing. The bank has been buying up to $5 billion a week under its QE program, and made it clear on Wednesday it has no plans to wind down the program any time soon.

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“To reinforce this commitment and keep interest rates low … the bank is continuing its large-scale asset purchase program at the current pace,” the bank said. “This QE program will continue until the recovery is well underway and will be calibrated to provide the monetary policy stimulus needed to support the recovery and achieve the inflation objective.”

Bank of Montreal economist Benjamin Reitzes said nothing in the bank’s statement Wednesday came as a surprise, but he said the central bank is making it clear that the economic recovery will be a long one.

“It’s crystal clear that road to a full recovery and a closing of the output gap will a very long one,” he said. “The bank remains firmly committed to providing ‘extraordinary monetary policy support’ for some time … likely years.”

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