On Wednesday, the Bank of Canada maintained its base interest rate at 0.25 percent, stating that while the economy is recovering in line with expectations, the threat of coronavirus variations makes the recovery unclear. The Bank of Canada stated on Wednesday that it has no intentions to raise its benchmark interest rate, often known as the overnight rate target unless Canada’s inflation rate shows indications of settling down at about 2%.
Official data show that inflation is currently at its highest level in a decade, at 3.4%, but the bank believes that this is only a temporary spike that will return to more normal levels once “transitory” imbalances in things like supply and demand for consumer goods, shipping bottlenecks, and a global shortage of semiconductors level off.
“In the Bank’s July estimate, this occurs sometime in the second half of 2022,” the bank stated, implying that it intends to keep its rate unchanged for at least another year. “The world economy is rapidly recovering from the COVID-19 epidemic, with continuous improvements in vaccines, particularly in richer economies. However, the recovery is still uneven and is reliant on the virus’s progress.”
The benchmark rate of the bank influences the rates that borrowers and savers get from retail banks on products such as variable-rate mortgages, lines of credit, and savings accounts. When everything else is equal, the central bank lowers its interest rate to promote spending and investment in order to boost the economy. When it tries to reduce inflation, it boosts it.