The Bank of Canada announced today that the overnight rate of 0.25% will hold. The Bank rate and deposit rate will hold at 0.50% and 0.25% respectively.
The overnight rate is the interest rate at which major financial institutions borrow and lend money amongst themselves. The lower the overnight rate is, the less expensive it is for Canadian consumers to borrow money.
Canada’s economy continues to recover from the coronavirus pandemic, exemplified by a GDP growth of 9.6% in the final quarter of 2020. GDP growth in the first quarter of 2021 is also expected to be positive, contradicting early forecasts in January. Consumers and businesses adapting to current restrictions and the continued surge of the housing market are key contributors to the recovery of the economy.
While the economy has improved, there still remains economic slack given the uncertainty of the virus and the journey to economic growth. The Bank of Canada remains committed to maintaining the policy interest rate at 0.25% until the economic slack is absorbed. According to their projections, the Bank of Canada doesn’t anticipate this happening until 2023.
For the full press release from the Bank of Canada, click here.