The Bank of Canada has kept interest rates in anticipation of inflationary pressures resulting from the pandemic crisis

The Bank of Canada has kept interest rates unchanged and reiterated the need to keep them at historic lows to stimulate the economy that has been hit by the second wave of the Covid-19 pandemic.

The key rate remains at 0.25%, and the long-term forecast indicates the need to keep it low for as long as necessary until the damage from the pandemic is completely eliminated. The projection of rate changes assumes the first increase no sooner than in 2023 and it’s similar to the Fed's position.

The bank also confirmed the need to buy Canadian government bonds for at least CAD $4 billion per week as part of the stimulus. At the same time, it is indicated that the monetary regulator may reduce purchases as soon as economic activity begins to recover.

There will be no additional measures to which some part of the market hoped for amid the deteriorating economic situation. Committee members seem to be optimistic about the strategy for the economy, without giving hints of expanding the stimulus program. The beginning of the year is expected to be difficult, but the second half may show a quick rebound.

The Canadian dollar rose against the US dollar after statements by 0.8% to 1.2630 and exceeded this level for a while. The 10-year government bonds yield increased by 3 basis points to 0.84%.

In general, all the statements were expected by most market players, although some economists indicated that Tiff Macklem might have an idea for further rate cuts amid a worsening epidemiological situation and lower inflation. Price pressures in Canada slowed down in December unexpectedly. The annual rate fell to 0.7% from 1% in November, while economists had expected a 1% rise. Core inflation fell to 1.57%, 10 basis points lower than in the previous month.

by Justforex, 2021.01.20

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

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