Bank of Canada maintains its critical rate at 0.25%
The Bank of Canada kept its key interest rate on hold Wednesday as it said the country's economy won't fully recover what was lost to COVID-19 until 2022, with the road to there dependent on the path of the pandemic.
In July, the Bank of Canada said it believed the country had been spared from a worst-case scenario.
The central bank left its overnight rate at 0.25%.
In July, the Bank of Canada said it believed the country had avoided the worst-case scenario.
The bank's update outlook in its monetary policy report said the rebound over the summer was stronger than expected as the country reversed about two-thirds of the decline seen in the first half of the year.
Officials estimate that the economy will decline by 5.7 percent this year, but by 4.2 percent next year and 3.7 percent in 2022.
The report also stated that Statistics Canada's Consumer Price Index, the country's major inflation barometer, would remain below the bank's two percent target by 2022.
The report estimates annual inflation to be 0.6 percent this year, 1.0 percent next year and 1.7 percent in 2022.
Governor Tiff Macklem has said that the bank will keep its key policy rate low as it can go to 0.25 percent until the economy has recovered and inflation is back on target.
The bank on Wednesday set its nightly target at 0.25 percent, but it announced buying more long-term bonds because they "have a more direct impact on lending rates that are most important to households and businesses."
The projections for growth and inflation mark a return to the bank's usual practice of giving a longer view for the economy in its quarterly monetary policy report.
The report said the six months of experience with containment measures and support programs, as well as more information on medical developments like vaccines, has given the bank a better foundation to make a base-case forecast.
Underpinning the bank's outlook are two major assumptions: That widespread lockdowns won't be utilized again and that a vaccine or effective treatment will be widely available by mid-2022.
The country has recouped about two-thirds of the three million jobs lost in March and April. Emergency federal aid has replaced lost wages for millions of workers, and provided loans and wage subsidies to struggling businesses.
The recuperation from the drop earlier this year has been uneven, the report notes. The hardest hit sectors, such as restaurants, travel and accommodation, continue to lag.Workers in those sectors, as well and youth and low-wage workers, continue to face high levels of unemployment, the report says.All may be hit hard again by any new rounds of restrictions, the report notes. Some areas of the country have already imposed such public health restrictions in the face of rising COVID-19 case count.
The breadth and intensity of reimposed containment measures, including impact on schools and the availability of child care, could lead to setbacks, the report says.Long breaks in employment have the potential for longer-term impact on the income prospects of vulnerable groups.
The report said government aid has played a key role in providing a financial lifeline to individuals and businesses.
Changes to employment insurance and new benefit programs will increase households' disposable income, officials write, adding that the bank expects government aid to "provide important support to the economy throughout the recovery.
