MNI POLICY: BOC Affirms Forward Guidance on QE and 0.25% Rate

The Bank of Canada on Wednesday maintained QE of at least CAD4 billion a week and its plan to hold the benchmark lending rate at 0.25% into 2023, saying signs of momentum and vaccine breakthroughs will be curbed in the first quarter of 2021 by a rise in Covid-19 cases.

The economy faces "a choppy trajectory until a vaccine is widely available," Governing Council members led by Tiff Macklem said in a statement from Ottawa. The BOC intends to keep QE until the economic recovery is well underway.

Private economists say growth likely almost stalled again this quarter after a rebound following a spring lockdown, with local governments stepping up new health shutdowns. While there are signs a Covid-19 vaccine will be distributed by the second half of next year, that still leaves another phase where the economy needs a lot of support on top of deficit spending unseen since World War II.

The BOC estimated in October the economy would shrink 5.7% this year and expand about 4% on average over the next two years, while inflation would quicken from 0.6% to 1.7%. "The outlook for inflation remains in line with the October MPR projection," the BOC said Wednesday. "Measures of core inflation are all below 2 percent, and considerable economic slack is expected to continue to weigh on inflation for some time."

The statement made another reference to Canada's dollar, saying it has strengthened further amid a global decline in the U.S. dollar.

Wednesday's meeting is also the last day for Senior Deputy Governor Carolyn Wilkins, who is leaving before her seven-year term expires in May, and a replacement hasn't been named yet. The decision is one of the four each year without a full economic forecast or press conference, though there will be an economic report card speech on Thursday.

"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," the BOC statement said. "Near term, new waves of infections are expected to set back recoveries in many parts of the world."

"The Governing Council will hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved. In our October projection, this does not happen until into 2023."