By Max Sato
(MaceNews) – Bank of Canada policy-makers are sticking to their stance to take their time unwinding quantitative easing amid growing uncertainty over global and domestic economic recovery.
The bank’s Governing Council announced Wednesday that it is holding the target for overnight lending rates at 0.25% and maintaining the pace of weekly asset purchases at C$2 billion after reducing it from C$3 billion in its last policy decision on July 14.
Canada’s economic recovery still needs “extraordinary monetary policy support,” it said, repeating its recent conviction.
The no-change in the bank’s policy stance was widely expected in light of an unexpected pause in recovery in the April-June quarter and a spike in the annual inflation rate above its 1 to 3% target range. The bank also seems to be trying to stay neutral ahead of Canada’s general election on Sept. 20.
The central bank updated its list of concerns as the more contagious Delta variant has prompted lockdowns in some areas in Southeast Asia, disrupting global supply chain networks. Automakers were already cutting production and shipments, hit by lingering global semiconductor shortages.
“The global economic recovery continued through the second quarter, led by strong US growth, and had solid momentum heading into the third quarter,” the bank said in a statement Wednesday. “However, supply chain disruptions are restraining activity in some sectors and rising cases of COVID-19 in many regions pose a risk to the strength of the global recovery.”
The bank cautioned that “the fourth wave of COVID-19 infections and ongoing supply bottlenecks could weigh on the recovery” while maintaining its standard scenario that the Canadian economy will “strengthen in the second half of 2021.”
The focus is on whether the bank will lower its GDP forecast, amid a resurgence in coronavirus cases, in its next policy decision on Oct. 27, when it also releases the quarterly Monetary Policy Report.
In its July report, the BOC projected Canada’s economic growth of 6% in 2021, 4.5% in 2022 and 3.25% in 2023.
The bank has made it clear that it will hold the policy rate at the effective lower bound of 0.25% until economic slack is absorbed and stable 2% inflation is anchored. In July, the bank projected that would happen “sometime in the second half of 2022.” There is no change to this outlook in Wednesday’s statement.
The central bank is counting on continued progress in vaccinations and an easing of supply constraints down the road for stronger economic recovery later this year after a bumpy start to the first half of 2021.
BOC policy-makers regard the recent surge in domestic inflation as “transitory,” triggered by global supply chain disruptions, higher prices for energy and commodities this year compared to last year, and strong demand for goods linked to the stay-home lifestyle during the pandemic.
April-June GDP data showed the Canadian economy unexpectedly shrank 1.1 percent at an annualized rate while consumer prices surged 3.7 percent on year in July.