BoC left overnight rate target unchanged at 0.25% as widely expected. Bank rate and deposit rate are held at 0.50% and 0.25% respectively. Weekly net purchases of Canadian Government bonds is reduced from CAD 4B to CAD 3B, as widely expected too. It noted that “this adjustment to the amount of incremental stimulus being added each week reflects the progress made in the economic recovery.”
Also, as economic prospect improve, BoC now expects that economic slack will be absorbed some time in H2 of 2022, much earlier than March’s expectation of “until into 2023”. BoC will only commits to hold policy interest rate at ELB until then.
BoC revised real GDP growth forecast to 6.5% in 2021 (up from 4%), 3.75% in 2022 (down from 5%) and 3.25% in 2023 (up from 2.25%). Inflation is expected to rise “temporarily” to around top of 1-3% target range over the next few months, due to base-year effects. But CPI is expected to ease back to 2% over H2 of 2021. As slack is absorbed, inflation should return to 2% on a “sustained basis some time in the second half of 2022”.
