The Bank of Canada announced Wednesday that the Canadian economy appears to have avoided the most severe scenario and the Bank has maintained its overnight rate at the effective lower bound of 0.25 per cent.
“In Canada, the pandemic has led to historic losses in output and jobs. Still, the Canadian economy appears to have avoided the most severe scenario presented in the Bank’s April Monetary Policy Report (MPR). The level of real GDP in the first quarter was 2.1 percent lower than in the fourth quarter of 2019. This GDP reading is in the middle of the Bank’s April monitoring range and reflects the combined impact of falling oil prices and widespread shutdowns,” said the Bank in a news release.
“The level of real GDP in the second quarter will likely show a further decline of 10-20 percent, as continued shutdowns and sharply lower investment in the energy sector take a further toll on output. Decisive and targeted fiscal actions, combined with lower interest rates, are buffering the impact of the shutdown on disposable income and helping to lay the foundation for economic recovery. While the outlook for the second half of 2020 and beyond remains heavily clouded, the Bank expects the economy to resume growth in the third quarter.
“CPI inflation has decreased to near zero, as anticipated in the April MPR, mainly due to lower prices for gasoline. The Bank expects temporary factors to keep CPI inflation below the target band in the near term. The Bank’s core measures of inflation have drifted down, although by much less than the CPI, and are now between 1.6 and 2 percent.”
Robyn Gibbard, Senior Economist with the Conference Board of Canada, said: “Today the Bank of Canada unsurprisingly held the interest rate steady at its lower bound. The health of the financial system allowed it to begin rolling back some of its extraordinary market operations aimed at financial institutions. However, its purchases of provincial, federal, and corporate bonds remain in place.”
