The Bank of Canada, a close-up detail, is seen in Ottawa on May 30, 2018. (Sean Kilpatrick/THE CANADIAN PRESS)

Bank of Canada keeps key interest rate target on hold

Citing the severe impact of the COVID-19 pandemic on the global economy and uncertainty about how the recovery will unfold, Canada’s central bank announced Wednesday that it is keeping its key interest rate target on hold.

The Bank of Canada says its target for the overnight rate – the rate at which major financial institutions borrow and lend one-day funds among themselves – will remain at 0.25 per cent.

The central bank says the impact of the pandemic on the global economy appears to have peaked, but there remains a great deal of uncertainty.

In Canada, the pandemic has led to historic losses in output and jobs, the bank says. Still, the Canadian economy appears to have avoided the most severe scenario presented in the Bank’s April Monetary Policy Report (MPR).

The central bank now expects GDP to decline between 10 and 20 per cent compared with the fourth quarter of 2019, down from the 15 to 30 per cent decline forecasted in April.

There is some reason for optimism, the bank says.

“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,” says the statement by the central bank.

“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.”

Categories: Economy

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