Bank of Canada Leaves Overnight Rate Unchanged at 0.25%

BoC Reiterates Commitment to Monetary Stimulus

• The Bank of Canada left the overnight rate unchanged at 0.25% this morning. The Bank reiterated that it will continue the asset purchase program at its current pace of at least $5bn/week of Government of Canada bonds. 
• As in the July Monetary Policy Report, the Bank provided guidance that it will hold the policy interest rate at the current level until economic slack is absorbed and the 2 percent inflation target is sustainably achieved. In terms of the quantitative easing program, the Bank stated it will continue large-scale asset purchases and keep rates low across the yield curve until the economic recovery is well underway.
• The Bank left the door open for flexibility around the QE program by noting that monetary stimulus will be calibrated to provide the support needed for the economic recovery. 

Key Implications

• Unsurprisingly, the Bank of Canada decided to leave the overnight rate and QE program unchanged today. Although the economy is rebounding faster than what the Bank anticipated in July, it still has a long way to go to achieve a full recovery. In particular, the labor market gains have been uneven, with some sectors trailing far behind others, and businesses have been reluctant to invest. 
• Indeed, the Bank noted that the economy will require extraordinary monetary policy support as it moves from reopening to recuperation, which is likely to be choppy and slow. As such, the Bank of Canada again reiterated its commitment to provide accommodative monetary policy for some time.  

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