BoC Expects Canadian Economy to Grow by 4% in 2021

The Bank of Canada (BoC) on Wednesday decided to maintain its target for the overnight rate at the effective lower bound of 0.25%, with the bank rate at 0.5%, and the deposit rate at 0.25%.

The Bank is maintaining its extraordinary forward guidance, reinforced and supplemented by its quantitative easing (QE) program.

The Bank is recalibrating the QE program to shift purchases towards longer-term bonds, which have more direct influence on the borrowing rates that are most important for households and businesses.

At the same time, total purchases will be gradually reduced to at least $4 billion a week.

The Bank expects Canada’s economy to grow by almost 4% on average in 2021 and 2022, following a decline of about 5.5% in 2020.

According to the bank’s monetary policy report, the global and Canadian economic outlooks have evolved largely as anticipated in July, with growth exceeding expectations as markets reopened.

Looking ahead, rising COVID-19 infections are likely to weigh on the economic outlook in many countries, and growth will continue to rely heavily on policy support.

Furthermore, the inflation rate in Canada is expected to stay below the target band of 1-3% until early 2021, largely due to low energy prices.