Bank of Canada holds key interest rates steady in cautious approach to economic recovery


The central bank says it continues to expect the economy to strengthen in the second half of the year, although the fourth wave of COVID-19 infections and supply bottlenecks could weigh on the recovery.

Governor of the Bank of Canada Tiff Macklem holds a press conference at the Bank Of Canada in Ottawa on Wednesday, Oct. 28, 2020. In his Sept. 8, 2021 update, he is widely expected to announce that rates will remained unchanged.(Sean Kilpatrick/The Canadian Press)

The Bank of Canada kept its key interest rate target on hold Wednesday as it warned the fourth wave of the pandemic and supply bottlenecks could weigh on the economic recovery.

The central bank held its target for the overnight rate at 0.25 per cent, what it calls the effective lower bound, and said it will also maintain its quantitative easing program by buying bonds at a target pace of $2 billion per week.

"The governing council judges that the Canadian economy still has considerable excess capacity, and that the recovery continues to require extraordinary monetary policy support," the bank said in its decision.

The central bank said is continues to expect the economy to strengthen in the second half of the year, though the fourth wave and supply issues may cause problems for the recovery.

It also repeated its commitment to hold its trendsetting rate at near-zero until the economy is ready to handle an increase in rates, which it doesn't expect to happen before the second half of 2022.

The central bank noted that inflation remains above three per cent as expected, boosted by base-year effects, gasoline prices, and pandemic-related supply bottlenecks.

However, it said the factors pushing up inflation are expected to be transitory, but their persistence and magnitude are uncertain and will be monitored closely.

"Wage increases have been moderate to date, and medium-term inflation expectations remain well-anchored," the policy statement says.

The Bank of Canada's next interest rate decision is scheduled for Oct. 27, when it will also update its outlook for the economy and inflation in its fall monetary policy report.

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