The Bank of Canada (BoC) is likely to leave its main interest rate unchanged at 0.25% today as economic activity
The Bank of Canada (BoC) is likely to leave its main interest rate unchanged at 0.25% today as economic activity and future outlooks remain depressed.
Another hold today would be the third such decision from BoC since March, when it slashed the benchmark rate in response to severe contractions throughout global economies. New BoC Governor Tiff Macklem has said the rate will remain at this low level until the economy recovers; many economists believe a rate hike will not happen until 2023.
In response to an unprecedented shift in the labour market, BoC is expected to adopt a new framework for working with inflation targets, a critical data point used to set interest rates. One possible framework, largely in line with the framework recently adopted by the US Federal Reserve, would see BoC utilise an average inflation rate calculated over several years. Though the target rate of inflation would likely remain at 2%, this would allow the Bank to tolerate years of higher inflation to compensate for periods of low inflation—such a period is expected to persist through the next year. Overall, expect a protracted economic recovery to induce minimal changes from BoC through the long-term outside of its quantitative easing programs.
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