OTTAWA—Positive news about vaccine delivery won’t be enough to give the economy a shot in the arm to start 2021, the Bank of Canada said Wednesday as it kept its key interest rate on hold and warned rising COVID-19 cases in Canada will weigh on near-term growth.
The central bank said economic restrictions in response to burgeoning case counts will hold down economic growth for the first three months of the new year and that the virus will “contribute to a choppy trajectory until a vaccine is widely available.”
The Canadian economy took a nosedive in March and April when the pandemic first washed over the country, as non-essential businesses were ordered closed, workers told to stay at home and some three million jobs were lost.
Since then, the country has clawed back just over four-fifths of those job losses.
The central bank’s most recent economic forecasts were based on having a vaccine becoming widely available in 2022, not by next year as now appears the case.
Still, the central bank said Wednesday the economy will need what it calls “extraordinary monetary policy support” in the forms of a rock-bottom policy rate and a continued bond−buying program unprecedented in the central bank’s history.
The central bank held its key policy rate at 0.25 percent. It also announced it would continue its quantitative easing program by buying $4 billion of bonds per week.
Both moves are designed to drive down interest rates on things like mortgages and business loans to prod spending and ease debt loads.
The central bank said it will hold the policy interest rate at the effective lower bound, meaning it is as low as the bank believes it can go, until economic slack is absorbed so that its two percent inflation target is sustainably achieved.
In its statement, the Bank of Canada said it doesn’t expect inflation to get back on target until some time in 2023.
The bank said the federal government’s recently announced measures should help maintain business and household incomes during this second wave of COVID-19 and help the economy continue to recover.
The announcement marks the last interest rate decision the central bank will make this year, after an extraordinary 2020 that saw it slash rates in response to the economic crisis caused by COVID−19.
It’s next rate decision will be in late January, at which time the Bank of Canada will update its economic and inflation outlook.
Wednesday also marked a change in the upper echelons of the bank’s leadership, as senior deputy governor Carolyn Wilkins departs after a nearly 20-year career at the Bank of Canada.
The central bank’s board of directors has launched a search process to find her successor as the bank’s second-in-command.