On July 14, the Bank of Canada (BoC) announced that it will hold its current level of policy rate until the inflation objective is sustainably achieved. The overnight rate remains the same at the effective lower bound of 0.25%. The Bank Rate remains at 0.5% and the deposit rate at 0.25%.

Quantitative easing (QE) has been adjusted to the target pace of $2 billion per week. This shows continued progress in economic recovery and increased confidence in the Canadian economic outlook.

Economic Outlook

• Strong recovery from the pandemic due to continued progress with vaccinations. However, the new COVID-19 variants are a growing concern
• In April, global GDP growth was expected to reach 7% this year, 4.5% in 2022, and just over 3% in 2023
• Monetary Policy Report is stronger and reflects a stronger US outlook, however, Canada-US exchange rate is little changed since April
• Rising demand is supporting higher oil prices, while non-energy commodity prices remain elevated

What to Expect

• 3rd wave of the virus slowed growth, however, falling cases, vaccine progressions, and easing restrictions indicate a strong pickup in the 2nd half of this year
• Bank now expects GDP growth around 6 percent in 2021, 4.5% in 2022, 3.25% in 2023
• Consumption is expected to lead recovery as households are expected to return to normal spending patterns and stronger international demand should increase recovery in exports
• Housing market activity is projected to ease back from historical highs
• Employment is beginning to rebound and post strong gains with the re-opening of the economy -- however, the pace of recovery is uncertain due to lockdowns and structural changes in the economy

CPI inflation was 3.6% in May due to boosts by base-year effects, stronger gasoline prices, and pandemic implications as the economy re-opens. Demand is recovering faster than supply in high-contact services, increasing prices from low levels. Due to transitory supply constraints in shipping and value chain disruptions for semiconductors, prices for cars and other goods may rise. With high gasoline costs and supply bottlenecks, inflation is predicted to remain above 3% in the second half of 2021 and ease to 2% in 2022. 

According to the Governing Council judges, the Canadian economy continues to have considerable excess capacity and requires extraordinary monetary policy support. The BoC is committed to holding the policy interest rate at the effective lower bound until the 2% inflation target is sustainably achieved -- which is projected to occur in the second half of 2022. The BoC’s QE helps keep the interest rates low across the yield curve. Further adjustments will be guided by the Governing Council’s assessments and they will continue to provide monetary policy stimulus to support recovery and achieve inflation objectives.

Ontarians can take advantage of the low interest rates whether it is to buy a home, purchase an investment property or refinance and use the equity on their home to expand their business, invest or consolidate debt.

If you are interested in knowing your purchasing and refinancing options, take advantage of a free consultation session with one of our experts.