Brenda St Amand

The Bank of Canada had it's first interest rate announcement yesterday and while some were speculating on a micro-cut, they held steady on the current overnight rate. Some more positive outlook comments may indicate potential increases in the future.

These are the highlights of today’s BoC announcement for the Canadian economy:

Canada’s economy had strong momentum through late 2020, but the resurgence of COVID-19 cases and the reintroduction of lockdown measures present “a serious setback”
Growth in the Canadian economy in Q1 2021 is now expected to be negative – even after a decline in real GDP of 5 ½% in 2020
Unemployment remains elevated, particularly for workers in high-contact service industries who will once again be the hardest hit by lockdown measures
Assuming pandemic restrictions are lifted later in the first quarter, the Bank expects a strong second-quarter 2021 rebound
The Bank projects the Canadian economy will grow by 4% in 2021 and almost 5% in 2022 – a modest upward revision from the projections contained in its October 2020 Monetary Policy Report
Beyond the near term, the outlook for Canada is “now stronger and more secure” than in the October projection, thanks to earlier-than-expected availability of vaccines and significant ongoing monetary and fiscal stimulus
On inflation, the Bank noted the following:

Consumption is forecast to gain strength as parts of the economy reopen and confidence improves, and exports and business investment will be buoyed by rising foreign demand
CPI inflation has risen to the low end of the Bank’s 1-3% target range in recent months, while measures of core inflation are still below 2%
CPI inflation is forecast to rise temporarily to around 2% the first half of 2021, “as the base-year effects of price declines at the pandemic’s outset — mostly gasoline — dissipate”
Excess supply is expected to weigh on inflation throughout the projection period and as it is absorbed, inflation is expected to return sustainably to the 2% target in 2023
The BoC also offered the following thoughts on the global economy:

Global growth is expected to average just over 5% per year in 2021 and 2022 – before slowing to just over 4% in 2023

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