A Closer Look at the Bank of Canada Policy Statement

The Bank of Canada (BoC) The Bank of Canada (BoC) has decided to maintain its key interest rate unchanged at a record low of 0.25%, as the economy remains in need of support, according to the bank’s statement following its monetary policy meeting on Wednesday.

The Canadian central bank expects to keep the current level of interest rates until the second half of 2022, compared with a previous estimate of 2023, as this is the time in which the bank expects inflation to return to sustained basis to the 2% target.

Furthermore, the BoC has decided to reduce its quantitative easing measures by scaling back the massive asset purchase program.

The weekly net purchases of government bonds will be adjusted to a target of CAD 3 billion.

“This adjustment to the amount of incremental stimulus being added each week reflects the progress made in the economic recovery,” the bank explained.

“The positive outlook also means that fixed rates should continue to drift up throughout the remainder of 2021.”

“Housing construction and resales are at historic highs, driven by the desire for more living space, low mortgage rates, and limited supply.”

“The Bank will continue to monitor the potential risks associated with the rapid rise in house prices.”

BoC raised its expectations for economic growth in 2021 to 6.5%, up from a previous estimate of 4.0%.

Starting 2022, growth is expected to moderate, according to the bank’s statement.

BoC governor Tiff Macklem said the bank welcomes the recent proposal by the superintendent of financial institutions to introduce a fixed floor to minimum qualifying rate for uninsured mortgages

“New measures just announced in the federal budget will also be helpful.”

The Canadian Dollar (CAD) continued to decline against the U.S. Dollar (USD) for the third consecutive session, with the USD/CAD pair closing Wednesday at 1.2633, rising by about 0.19% on a daily basis to its highest closing level since the beginning of the month.