The Bank of Canada in Ottawa on Tuesday, Dec. 15, 2020. (Sean Kilpatrick/THE CANADIAN PRESS)

Bank of Canada holds rate steady at 0.25%, expects economic growth in 2021

As the COVID-19 pandemic continues to take a severe human and economic toll in Canada and around the world, the country’s central bank decided to keep its benchmark interest rate steady at 0.25 per cent on Wednesday.

The benchmark rate affects how much interest individual Canadians and businesses pay or get paid on their home and car mortgages, commercial loans and saving accounts.

The Bank of Canada said while the real gross domestic product (GDP) declined by 5.5 per cent in 2020 and it expects the Canadian economy to continue shrinking until the end of March, the economy is projected to grow by 4 per cent in 2021, almost 5 per cent in 2022, and around 2.5 per cent in 2023.

“The outlook for Canada is now stronger and more secure than in the October projection, thanks to earlier-than-expected availability of vaccines and significant ongoing policy stimulus,” the bank said.

The bank also decided to continue its $4-billion-a-week bond-buying program, known as quantitative easing, designed to further stimulate the economy by injecting more cash into the financial markets.

Bank of Canada Governor Tiff Macklem takes part in a news conference at the Bank of Canada in Ottawa on Tuesday, Dec. 15, 2020. (Sean Kilpatrick/THE CANADIAN PRESS)

Bank of Canada Governor Tiff Macklem said in a press release that the central bank’s governing council has agreed that if the economy turns out to be substantially weaker than what is being projected, the bank has the option of adding even more stimulus.

“We also agreed that it is too early to consider slowing the pace of our purchases of Government of Canada bonds,” Macklem said. “However, if the economy and inflation play out broadly in line or stronger than we projected, then the amount of quantitative easing stimulus needed will diminish over time.”

RBC senior economist Josh Nye said the bank’s more optimistic medium-term forecasts are the key takeaway from today’s policy statement and the Monetary Policy Report.

“Compared with the Bank of Canada’s October 2020 forecasts, faster-than-expected vaccine rollout (notwithstanding recent shipment delays) and easing of containment measures is expected to result in a more significant pickup in GDP growth as 2021 progresses,” Nye wrote in an analysis note to clients.

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