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Bank of Canada leaves key interest rate on hold at 0.25%

Click to play video: 'Bank of Canada warns Canadians need to be ‘prudent’ when taking on household debt' Bank of Canada warns Canadians need to be ‘prudent’ when taking on household debt
Speaking to the media on Thursday, Bank of Canada Governor Tiff Macklem warned Canadians to be "prudent" when taking on more household debt, at a time when the housing market in many cities is exploding and many Canadians are looking to spend their pandemic savings. – May 21, 2021

The Bank of Canada is keeping its key interest rate target on hold at 0.25 per cent.

The rate has been on hold at its rock-bottom level since the onset of the pandemic last year and the central bank has said it won’t increase the rate until the economy has recovered.

Today’s announcement points to a recovery some time in the second half of 2022.

First quarter growth figures for the Canadian economy came in below the central bank’s forecast, but today’s announcement brushes off the shortfall.

The statement says stronger-than-expected household spending and more imports over the first three months of the year point to rising consumer confidence and resilient demand.

Read more: Canadian households are taking on too much debt, Bank of Canada warns

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The statement adds that renewed lockdowns during the third wave of the pandemic dampened economic activity in the second quarter, as anticipated, affecting workers in high-contact industries like restaurants.

The bank says it expects the Canadian economy to rebound strongly starting this summer, led by consumer spending, as vaccinations proceed at a faster pace and provincial governments ease economic restrictions.

Click to play video: 'Bank of Canada issues warning about overheated housing market' Bank of Canada issues warning about overheated housing market
Bank of Canada issues warning about overheated housing market – Feb 24, 2021

Housing market activity also gets a nod in the rate announcement, with the bank’s governing council forecasting activity to moderate, but remain elevated over the coming months.

The bank also says it expects annual inflation figures to hover around three per cent over the summer because of higher gas prices and comparing prices now to the low levels they were at last year because of the pandemic.

Read more: From takeout to gas prices, how to protect yourself from rising inflation

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Inflation should then ease later this year, the bank says, but warns that the path of the pandemic and the evolution of new variants still pose a risk to the inflation outlook.

The bank also says it will stay the course on its federal bond purchases for now, after tapering purchases just a few weeks ago citing improving economic conditions.

The purchases help drive down rates charged on mortgages and business loans.

CIBC senior economist Royce Mendes writes the bank chose not to make any waves of its own in financial markets with the third wave of the virus still winding down across the country.

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