The Bank of Canada opted to keep its benchmark interest rate steady at 0.25 per cent on Wednesday, noting that Canada’s economic recovery from COVID-19 is proceeding in line with expectations.
The bank said that while new infections and lockdowns continue to hold back Canada’s economy, stronger demand for energy has pushed up the price of oil, which is giving it a boost. And news of looming vaccines rolling out is also helping.
“News on the development of effective vaccines is providing reassurance that the pandemic will end and more normal activities will resume, although the pace and breadth of the global rollout of vaccinations remain uncertain,” the bank said.
The central bank meets every six weeks to set its interest rate based on whether or not the economy needs a helping hand or to be slowed down in the face of too-high inflation. The bank’s rate filters into the real economy by impacting the rates that consumers get on things like variable rate mortgages and savings accounts.
The bank cuts its rate when it wants to encourage borrowing and investing to stimulate the economy, and it raises its rate to cool things down. The bank slashed its rate to its current record low in March and April when the pandemic was first unfolding.
At the bank’s last meeting in October, it signalled that it would keep the rate at its current level until at least 2023 because that’s how long it thinks it will take to make a full recovery.
Wednesday’s decision made it clear that is still the plan. “Canada’s economic recovery will continue to require extraordinary monetary policy support,” the bank said. “We remain committed to providing the monetary policy stimulus needed to support the recovery.”
Economist Sri Thanabalasingam with TD Bank said the bank had no surprises on Wednesday, noting that just as vaccines seem key to a return to normal life, so, too, will they be key to the economy getting back to some semblance of normal.
“Hopes are pinned to a well-co-ordinated rollout of the vaccine. If all goes well, we could very well see a rapid economic recovery take shape as confidence returns to Canadian businesses and households, allowing them to increase spending that has been severely curtailed by the pandemic,” Thanabalasingam said. “Time will tell.”