Canada Monetary policy

Summary of monetary responses to COVID in Canada

In response to the COVID induced economic slump, the Bank of Canada has

  • lowered policy interstate rate to 0-0.25%, to reduce borrowing cost of short term loans.
  • launched liquidity and asset purchase programs, to avoid credit crunch and to reduce borrow cost of long term loans.
  • committed to hold low policy interest rate until economic slack is absorbed and inflation target of 2% is SUSTAINABLY achieved.
  • provided timeline of no rate increase at least 2023.
  • committed to continue asset purchase programs until economic recovery WELL underway.

While the Bank of Canada recognized the importance of exports to the Canadian economy especially to its ongoing recovery, it does not seem to be willing to sacrifice the value of the loonie for the benefit of export competitiveness. In doing that the Bank of Canada clearly rules out the possibility of negative interest rates, and leaves the door open to adjust the amount and the duration of the asset purchase programs as time goes. In that sense the loonie will continue to strengthen and the exchange rate will soon be in the range of 80 – 90 cents in US dollar.


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