On Wednesday, as expected, the Bank of Canada left the key interest rate unchanged at 0.25% and also made no changes to the QE program. Analysts at RBC Capital Markets explained the central bank sounded optimistic regarding the economic outlook.
Key Quotes:
“The bank acknowledged extended restrictions could mean some downside risk in Q1/21—and growth in the past quarter was already a bit short of the BoC’s expectations. Overall, the recent/near-term growth backdrop looks a bit less solid than the BoC was assuming in October, but the policy statement wasn’t overly downbeat in that regard.”
“We think vaccine news provides more than enough light at the end of the tunnel for the BoC to look through any modest growth disappointments stemming from the second wave. Without updated forecasts, though, it’s not surprising that the BoC was guarded in its optimism today.”
“There’s still a long way to go in the recovery—Q3 GDP was 5.3% below pre-pandemic levels, worse than the decline seen in 2008/09. The bank reiterated that its October forecasts didn’t envision economic slack being absorbed until 2023. Updated forecasts in January should move that timeline forward into 2022.”
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