Bank of Canada keeps rates at 0.25%, warns of negative growth in early 2021

The Bank of Canada has announced a decision to keep its key interest rate target pegged at 0.25 per cent.

The central bank has said that its expert predictions show that the Canadian economy will contract in the first quarter of 2021, hammering the hardest-hit workers again on the path to a recovery that is dependent on the rollout of vaccines.

Workers in high-contact service industries are expected to bear the brunt of a new round of lockdowns, which the central bank warns will further aggravate the effects of the pandemic on the labour market. However, this short-term pain is expected to pave the way for a more promising medium-term outlook, as vaccines are no being rolled out earlier than expected.

Notwithstanding, the bank warns in its updated economic outlook that total recovery from COVID-19 will take a considerable amount of time and that inflation may not return to its two-per-cent target until 2023, which is a year longer than previous forecasts showed.

Governor Tiff Macklem is scheduled to speak about the rate decision and outlook at a news conference later this morning.The bank’s latest monetary policy report, which is released every quarter detailing forecasts for economic growth and inflation, reveals that COVID-19 caused the economy to contract by 5.5 per cent last year.