Bank of Canada maintains policy rate, ends quantitative easing

By Ovunc Kutlu

ANKARA (AA) – The Bank of Canada announced Wednesday that it has maintained its policy rate, but putting an end to quantitative easing.

The target for the overnight rate was kept at 0.25%, with the bank rate steady at 0.5% and the deposit rate at 0.25%, it said in a statement.

The central bank said it is ending quantitative easing and moving into a reinvestment phase, during which it will purchase government bonds solely to replace maturing bonds.

"While bond yields have risen in recent weeks, financial conditions remain accommodative and continue to support economic activity," the statement said.

"In the face of strong global demand for goods, pandemic-related disruptions to production and transportation are constraining growth. Inflation rates have increased in many countries, boosted by these supply bottlenecks and by higher energy prices," it added.

The bank projected that global GDP will grow 6.5% in 2021, 4.25% in 2022, and around 3.5% in 2023.

It estimated Canada’s economy to grow 5% this year, before moderating to 4.25% next year, and 3.75% the year after.

"In Canada, robust economic growth has resumed, following a pause in the second quarter. Strong employment gains in recent months were concentrated in hard-to-distance sectors and among workers most affected by lockdowns," the statement said.

"The recent increase in CPI inflation was anticipated in July, but the main forces pushing up prices – higher energy prices and pandemic-related supply bottlenecks – now appear to be stronger and more persistent than expected," it added.

The central bank said it expects the consumer price index (CPI) to remain high through next year, but ease back to around its 2% target by late 2022.