BOC Upbeat about Vaccine but Remained Cautious about Slow Global Recovery

Central banks news

As widely anticipated, BOC left all its monetary policy measures unchanged. Policymakers acknowledged the economic recovery since the last meeting. Yet they cautioned about the resurgence in coronavirus cases and the potential impacts on related restrictions on the economic outlook. The central bank welcomed the vaccine news but warned that the pace of global economic recovery will remain gradual.

Only few changes were made in the accompanying statement. Highlighting the vaccine news in the second paragraph, BOC noted that “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. Near term, new waves of infections are expected to set back recoveries in many parts of the world”.

Concerning Canada’s developments, the members indicated that “activity remains highly uneven across different sectors and groups of workers”. While acknowledging that “economic momentum heading into the fourth quarter appears to be stronger than was expected in October”, they noticed that, “in recent weeks, record high cases of COVID-19 in many parts of Canada are forcing re-imposition of restrictions”. The members warned that “this can be expected to weigh on growth in the first quarter of 2021 and contribute to a choppy trajectory until a vaccine is widely available”.

On the monetary policy, BOC left the policy rate unchanged at the effective lower bound of 0.25%. It pledged to hold the policy rate unchanged “until economic slack is absorbed so that the 2% inflation target is sustainably achieved”, which is unlikely to happen “until into 2023”. The central bank also maintained its asset purchases at CAD4B/week.