An Update From the Bank of Canada

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The Bank of Canada has announced that it will once again hold its target for the overnight rate at the effective lower bound of 0.25% as expected, with no change to its April projection that the key rate is likely to begin rising in the second half of 2022.

The Bank’s June rate announcement saw the Bank rate remain steady at 0.5%, with the deposit rate also staying the course at 0.25%. The Bank said that economic developments in Canada had been broadly in line with its April outlook, although renewed lockdowns as a result of the third wave are dampening economic activity during the second quarter.

“With vaccinations proceeding at a faster pace, and provincial containment restrictions on an easing path over the summer, the Canadian economy is expected to rebound strongly, led by consumer spending,” the statement noted. “Housing market activity is expected to moderate, but remain elevated… Despite progress on vaccinations, there continues to be uncertainty about the evolution of new COVID-19 variants.”

The news was widely anticipated, with the Bank having kept its target for the overnight rate consistent since the beginning of the pandemic in March 2020. While the Bank left the benchmark interest rate untouched in its April statement, it also signalled that rate increases could be on the horizon in late 2022, a revision of its previous forecast that hikes would not take place until 2023 at the earliest.

Much attention will now focus on the Bank’s next interest rate announcement, scheduled for July 14, with Canada’s vaccine rollout accelerating, infection levels declining and the country’s most populous province Ontario indicating that it will begin to ease COVID-19 restrictions sooner than anticipated.