A woman walks past the Bank of Canada building, in Ottawa, Wednesday, Sept. 6, 2017. The Bank of Canada will say this morning what it will do with its key interest rate at a time when there is very little economic drama for the first time in years. THE CANADIAN PRESS/Adrian Wyld

Bank of Canada keeps key interest rate target on hold but warns of ‘slow, choppy’ recovery

The bank says its key rate will stay at near-zero until economic slack is absorbed

The Bank of Canada sought Wednesday to temper economic excitement about a sharper-than-expected rebound from the depths of the COVID-19 crisis, pointing to worrying trends that signal all is still not well.

In a statement, the central bank’s governing council said the bounce-back activity in the third quarter looks to be faster than it anticipated in July, as provinces opened up their economies even more over the summer.

Household spending spiked over the summer as a result of pent-up spending demand from previous months as some households had money to spend, but nowhere to spend it with businesses closed.

Also helping things along has been massive government spending to support those whose incomes dried up, the statement said.

But the bank warned of indicators that point to a slow and choppy recovery process.

The rebound in employment has been uneven, particularly for mothers with young children, visible minorities, students and low-wage workers. Energy price remain weak. Exports have gone up in line with foreign demand, but remain below pre-pandemic levels, the bank said, while business confidence and investment remain subdued.

“While recent data during the reopening phase is encouraging, the bank continues to expect the recuperation phase to be slow and choppy as the economy copes with ongoing uncertainty and structural challenges,” the statement said.

Governor Tiff Macklem is scheduled to speak on Thursday to the Canadian Chamber of Commerce about the uneven effects the COVID-19 pandemic has had on different sectors and groups of people.

What won’t change for some time is the central bank’s key interest rate, which was held Wednesday at 0.25 per cent.

The central bank’s key rate has remained at its lower effective bound since March when COVID-19 lockdowns plunged the economy into crisis and pushed inflation below the bank’s two-per-cent target.

Inflation is running close to zero, driven down from low gasoline prices and drops in travel spending.

The bank said inflation will remain below its two-per-cent comfort zone “in the near term,” meaning the key rate will stay at near-zero until economic slack is absorbed and its inflation target is “sustainably achieved.”

“That’s a situation which we see as not materializing until years into the future,” CIBC senior economist Royce Mendes wrote in a note.

The statement reiterated that the central bank stands ready to do whatever is necessary to aid the economy as it recuperates from the COVID-19 crisis, which will include ongoing purchases of federal government bonds.

Experts noted that the bank’s language on its quantitative easing efforts, which is a way for central banks to push money into the economy to encourage lending and investment.

The bank’s statement said its “QE” efforts will be adjusted to provide whatever monetary stimulus is needed to help the economy recover, and bring inflation back on target.

“It’s crystal clear that road to a full recovery and a closing of the output gap will a very long one,” wrote Benjamin Reitzes, BMO’s director of Canadian rates and macro strategist, adding it will likely take years.

The Bank of Canada will provide a more detailed analysis of its long-run assumptions for the domestic economy when it updates its monetary policy outlook later next month.

ALSO READ: B.C. records 429 new COVID-19 cases, two deaths over Labour Day long weekend

Jordan Press, The Canadian Press


Like us on Facebook and follow us on Twitter.

Want to support local journalism during the pandemic? Make a donation here.

Coronaviruseconomy

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

The River Forecast Centre is maintaining a flood watch for the area, including the Bella Coola River and tributaries, Kingcome River, Owikeeno-Rivers Inlet, and surrounding areas.
Wuikinuxv under evacuation order, more rain in forecast

Bella Coola’s Hill has re-opened but road conditions are muddy and wet

One person was killed in a two-vehicle crash south of Williams Lake on Highway 97 Wednesday, Oct. 28, 2020. (Photo submitted)
Highway 97 crash south of Williams Lake claims one life

Road conditions at the time were slippery and covered with slush: RCMP

Highway 20 is closed from the top Avalanche gate to the bottom Avalanche gate as of 19:30 on Tuesday October 27, 2020 (WL Tribune photo)
Rockslide closes the Hill as rain pours down in Bella Coola

Bad weather has resulted in rockfall on the Hill on Highway 20

The River Forecast Centre is issuing a Flood Watch for the Central Coast including Bella Coola River (file photo)
Flood watch issued for Bella Coola River

The River Forecast Centre is issuing a Flood Watch for the Bella Coola River

Two of the three grizzly cubs that were relocated to Smithers after their mother was killed (Caitlin Thompson photo)
Bella Coola residents urged to secure attractants after two sow grizzlies killed

One sow was a mother to three cubs of the year, which have been transported to Smithers

Burnaby RCMP responded to a dine-and-dash suspect who fell through a ceiling in March 2020. (RCMP handout)
VIDEO: Suspected dine-and-dasher falls through ceiling of Burnaby restaurant

A woman believed to be dashing on her restaurant bill fell through the kitchen ceiling

B.C. Premier John Horgan and Washington Gov. Jay Inslee arrive for annual Cascadia conference in Vancouver, Oct. 10, 2018. They have agreed to coordinate the permanent switch to daylight saving time. (B.C. government)
B.C. still awaiting U.S. approval to eliminate daylight saving time

Clocks going back one hour Nov. 1 in Washington too

Prime Minister Justin Trudeau shakes hands with US Vice-President Joe Biden on Parliament Hill in Ottawa on Friday, December 9, 2016. THE CANADIAN PRESS/ Patrick Doyle
A Biden presidency could mean good news for Canadian environment policy: observers

Experts and observers say even a U.S. outside the Paris agreement may ultimately end up in the same place

People take a photo together during the opening night of Christmas Lights Across Canada, in Ottawa, on Wednesday, Dec. 4, 2019. The likelihood that most Canadians will enjoy a holly jolly Christmas season of gatherings, caroling and travel is unlikely, say public health experts who encourage those who revel in holiday traditions to accept more sacrifices ahead. THE CANADIAN PRESS/Justin Tang
Ho, ho, no: Experts advise preparing for a scaled-back COVID holiday season

Many of the holiday season’s highlights have already been scrapped or are unlikely to take place

Is it time to start thinking about greener ways to package cannabis?

Packaging suppliers are still figuring eco-friendly and affordable packaging options that fit the mandates of Cannabis Regulations

Join Black Press Media and Do Some Good

Pay it Forward program supports local businesses in their community giving

Sen. Kim Pate is shown in Toronto in an October 15, 2013, file photo. The parliamentary budget office says a proposed law that would give judges discretion on whether to apply a lesser sentence for murder could save the federal government $8.3 million per year. THE CANADIAN PRESS/Colin Perkel
Judicial discretion for mandatory minimum sentences for murder would save $8.3M: PBO

The result would be fewer people in long-term custody at federal correctional institutions, experts say

Commissioner Austin Cullen looks at documents before opening statements at the Cullen Commission of Inquiry into Money Laundering in British Columbia, in Vancouver on February 24, 2020. THE CANADIAN PRESS/Darryl Dyck
RCMP lacked dedicated team to investigate illegal activities at casino, inquiry hears

Hearings for the inquiry are set to continue into next week and the inquiry is expected to wrap up next year

Robert Riley Saunders. (File)
Court approves money for B.C. foster children alleging harm from Kelowna social worker

The maximum combined total award for basic payments and elevated damages for an individual is $250,000

Most Read