Turning more optimistic on the economic outlook, BOC scaled back some term financing facilities, while leaving the policy rate and QE programs unchanged. Policymakers suggested that the impacts of the coronavirus pandemic have peaked, despite ongoing uncertainties.

The members have turned more optimistic about the economic developments. The judged that impacts of the pandemic on global growth have “peaked” and Canada has avoided the most severe economic scenario. GDP is expected to have contracted 10-20% in 2Q20, following a -2.1% decline in the first quarter. This is better than previous forecast of a 15-30% decline. GDP is expected to resume growth in the third quarter.

On the monetary stance, BOC left the policy rate unchanged at its effective lower bound of 0.25%. It also maintained its federal, provincial and corporate debt programs unchanged, pledging that these large scale asset purchases will continue “until the economic recovery is well underway”. However, it scaled back some market operations, citing improvement in the financial conditions. The central bank reduced the frequency of its term repo operations to once a week, and the purchase of bankers’ acceptances to twice a week. It has pledged to make further adjustment if appropriate.

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Although the economy might have evolved better than previous anticipated, BOC will continue to monitor the situation and act as appropriate. Meanwhile, monetary stimulus will have to be accompanied with generous fiscal policy, if the government hopes get the economy in shape.

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