Business

Bank of Canada says full recovery from virus will take two years

Published

4 years ago

July 15, 2020

The Bank of Canada pledged for the first time to keep interest rates at historically low levels for years to come to help spur the nation’s economic recovery.

At a decision Wednesday, the central bank left its overnight rate at 0.25 per cent, what policy makers led by Governor Tiff Macklem consider the lowest it can go. They also promised to keep the benchmark there until unemployment falls closer to pre-pandemic levels and inflation returns sustainably to their 2 per cent target. That would suggest rates won’t rise until after 2022, based on the bank’s new quarterly forecasts.

The move is the strongest commitment yet by the central bank that it will do whatever it takes to help Canada emerge from the coronavirus pandemic. Calling the hole left in the economy by COVID-19 the steepest and deepest downturn since the Great Depression, policy makers hope the certainty of low interest rates will spur households and businesses to borrow and spend.

“Our message to Canadians is that interest rates are very low and they are going to be there for a long time,” Macklem told reporters after the policy statement. “We have been unusually clear about the future path of interest rates.”

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The Canadian dollar rose after the statement, trading at $1.3513 per U.S. dollar at 12:40 p.m. Toronto time. That’s up 0.8 per cent from Tuesday.

Macklem’s pledge, referred to as forward guidance by economists, specifically commits the Bank of Canada not to raise its policy rate “until economic slack is absorbed so that the 2 per cent inflation target is sustainably achieved.” That likely means the unemployment rate, which is also now at historically high levels of above 12 per cent, would need to fall sharply. Companies, many of which have had to close or shut down partially because of pandemic lockdowns, also would need to be operating at near full capacity. It’s a scenario the central bank isn’t anticipating will happen before at least 2023.

The governor didn’t give a specific time period when that would happen, only to say that there needs to be evidence slack has been absorbed, adding that would be a “long ways off.” In its forecasts, the central bank projects inflation to average 0.6 per cent in 2020, 1.2 per cent in 2021 and 1.7 per cent in 2022. The Bank of Canada is mandated to target inflation at around 2 per cent.

While Canadians don’t have access to the central bank’s 0.25 per cent policy rate, the benchmark does dictate what households and businesses pay on loans. Interest rates that commercial banks give to their prime customers are typically just over 2 percentage points above the policy rate.

The crisis has already taken the bank into uncharted waters. It was forced to cut the benchmark rate to near zero, injected hundreds of billions in cash into financial markets and made the first-ever foray into large-scale asset purchases of government bonds.

In its policy statement, the bank reiterated its commitment to continue buying at least $5 billion (US$3.7 billion) a week in Canadian government bonds until the recovery is “well underway” — in order to reinforce its rate-freeze promise. Macklem said he expects the recovery will have reached that state before the economy fully returns to full capacity, suggesting the central bank expects to begin paring back asset purchases before it raises interest rates.

For the Bank of Canada, it’s part of a transition away from emergency measures first deployed to ease stresses in financial markets, toward policy tools that ensure the economy is flush with cheap money even as market functioning returns to normal. Canada joins the Bank of England and the European Central Bank in providing explicit forward guidance. While the Federal Reserve hasn’t adopted the practice yet, a number of officials have expressed support for moving toward explicit guidance in the U.S.

While its foray into quantitative easing is new, it’s not the first time the Bank of Canada has offered up forward guidance to keep rates low — doing so during the 2009 recession.

What Bloomberg’s Economists Say

“In his first meeting at the helm of the Bank of Canada, Governor Tiff Macklem employed a new form of the conditional commitment that featured so prominently in BoC communications in 2009 and 2010.”

–Andrew Husby, Bloomberg Economics

Macklem, who took over from Stephen Poloz as governor last month, sought to emphasize how the recovery will be slow and gradual.

Canada’s economy will need two years to fully bounce back, the bank said. It acknowledged the initial rebound from COVID-19 lockdowns has been strong, but it also painted a picture of a slow return to pre-pandemic levels of activity, persistent excess capacity, muted price pressures and plenty of uncertainty. Consumers are expected to remain cautious and business investment weak.

“The Bank expects economic slack to persist as the recovery in demand lags that of supply, creating significant disinflationary pressures,” policy makers said in the statement.

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Business

Roots sees room for expansion in activewear, reports $5.2M Q2 loss and sales drop

Published

12 hours ago

September 13, 2024

Anne Joseph

TORONTO – Roots Corp. may have built its brand on all things comfy and cosy, but its CEO says activewear is now “really becoming a core part” of the brand.

The category, which at Roots spans leggings, tracksuits, sports bras and bike shorts, has seen such sustained double-digit growth that Meghan Roach plans to make it a key part of the business’ future.

“It’s an area … you will see us continue to expand upon,” she told analysts on a Friday call.

The Toronto-based retailer’s push into activewear has taken shape over many years and included several turns as the official designer and supplier of Team Canada’s Olympic uniform.

But consumers have had plenty of choice when it comes to workout gear and other apparel suited to their sporting needs. On top of the slew of athletic brands like Nike and Adidas, shoppers have also gravitated toward Lululemon Athletica Inc., Alo and Vuori, ramping up competition in the activewear category.

Roach feels Roots’ toehold in the category stems from the fit, feel and following its merchandise has cultivated.

“Our product really resonates with (shoppers) because you can wear it through multiple different use cases and occasions,” she said.

“We’ve been seeing customers come back again and again for some of these core products in our activewear collection.”

Her remarks came the same day as Roots revealed it lost $5.2 million in its latest quarter compared with a loss of $5.3 million in the same quarter last year.

The company said the second-quarter loss amounted to 13 cents per diluted share for the quarter ended Aug. 3, the same as a year earlier.

In presenting the results, Roach reminded analysts that the first half of the year is usually “seasonally small,” representing just 30 per cent of the company’s annual sales.

Sales for the second quarter totalled $47.7 million, down from $49.4 million in the same quarter last year.

The move lower came as direct-to-consumer sales amounted to $36.4 million, down from $37.1 million a year earlier, as comparable sales edged down 0.2 per cent.

The numbers reflect the fact that Roots continued to grapple with inventory challenges in the company’s Cooper fleece line that first cropped up in its previous quarter.

Roots recently began to use artificial intelligence to assist with daily inventory replenishments and said more tools helping with allocation will go live in the next quarter.

Beyond that time period, the company intends to keep exploring AI and renovate more of its stores.

It will also re-evaluate its design ranks.

Roots announced Friday that chief product officer Karuna Scheinfeld has stepped down.

Rather than fill the role, the company plans to hire senior level design talent with international experience in the outdoor and activewear sectors who will take on tasks previously done by the chief product officer.

This report by The Canadian Press was first published Sept. 13, 2024.

Companies in this story: (TSX:ROOT)

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Business

Talks on today over HandyDART strike affecting vulnerable people in Metro Vancouver

Published

2 days ago

September 12, 2024

Anne Joseph

VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.

No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.

About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.

Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.

Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.

A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”

This report by The Canadian Press was first published Sept. 12, 2024.

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Business

Transat AT reports $39.9M Q3 loss compared with $57.3M profit a year earlier

Published

2 days ago

September 12, 2024

Anne Joseph

MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.

The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.

The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.

Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.

On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.

Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.

This report by The Canadian Press was first published Sept. 12, 2024.

Companies in this story: (TSX:TRZ)

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