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“As the economy recuperates, it will continue to require extraordinary monetary policy support,” the Bank of Canada said in a statement on Oct. 28.
The previous commitment — made in July after Macklem oversaw his first round of policy deliberations as governor — was to keep the central bank’s key interest rate pinned near zero until the two-per-cent-inflation target was “sustainably achieved.” Forecasts indicated that meant the benchmark rate would remain at a record low for at least a couple of years, and Macklem said as much in a television interview with BNNBloomberg at the time.
Policy-makers decided there was value in removing whatever ambiguity remained around their intentions, betting that by erasing the risk of a surprise spike in borrowing costs down the road, they will be able to induce more executives and households to borrow money to invest and spend. They said concretely in the new policy statement that their current forecasts suggest that they won’t reach their inflation goals “until into 2023,” giving the public something it can put in a calendar.
The central bank released a glum economic outlook.
Gross domestic product grew at an annual rate of almost 50 per cent in the third quarter, much faster than the rate of about 30 per cent that the Bank of Canada predicted in July. But growth decelerated dramatically as the economy entered what the Bank of Canada is calling the “recuperation phase” of the recovery from the COIVD-19 crisis. Its new forecast predicts an annual growth rate of only one per cent this quarter, and assumes that GDP won’t return to pre-pandemic levels until 2022.