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Bank of Canada keeps key interest rate on hold – CTV News

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OTTAWA —
The Bank of Canada kept its key interest rate on hold Wednesday as it said the country’s economy won’t recoup the losses from COVID-19 until 2022, with the road to recovery dependent on the path of the pandemic.

In July, the Bank of Canada said it believed the country had been spared from a worst-case scenario.

The bank’s updated outlook in its monetary policy report said the rebound over the summer was stronger than expected as the country reversed about two-thirds of the decline seen in the first half of the year.

Officials estimate the economy will shrink by 5.7 per cent this year, but grow by 4.2 per cent next year, and 3.7 per cent in 2022, meaning gross domestic product won’t rebound to pre-pandemic levels for another two years.

In his opening remarks at a late-morning press conference, governor Tiff Macklem said it will take quite some time for the economy to fully recover from the COVID-19 pandemic, and the path will be “uneven across sectors and choppy over time.”

“We know the pandemic is reducing investment and is likely to cause long-lasting damage to some people’s job prospects. These forces will reduce Canada’s economic potential,” Macklem said.

The report forecasts annual inflation at 0.6 per cent this year, 1.0 per cent next year, and 1.7 per cent in 2022.

The bank held its overnight rate target at 0.25 per cent on Wednesday, which is where it will stay until the economy has recovered and inflation is back on target.

The bank also announced Wednesday that it intended to buy more longer-term bonds because those have a “more direct influence on the borrowing rates that are most important for households and businesses.”

James Laird, co-founder of Ratehub.ca said the outlook suggests low interest rates until at least 2023, which is the earliest the bank anticipates the economy would be able to handle higher rates.

The projections for growth and inflation mark a return to the bank’s usual practice of giving a longer view for the economy in its quarterly monetary policy report.

The report said the six months of experience with containment measures and support programs, as well as more information on medical developments like vaccines, has given the bank a better foundation to make a base-case forecast.

Underpinning the bank’s outlook are two major assumptions: That widespread lockdowns won’t be utilized again and that a vaccine or effective treatment will be widely available by mid-2022.

The country has recouped about two-thirds of the three million jobs lost in March and April. Emergency federal aid has replaced lost wages for millions of workers, and provided loans and wage subsidies to struggling businesses.

The recuperation from the drop earlier this year has been uneven, the report notes. The hardest hit sectors, such as restaurants, travel and accommodations, continue to lag.

Workers in those sectors, as well and youth and low-wage workers, continue to face high levels of unemployment, the report says.

All may be hit hard again by any new rounds of restrictions, the report notes. Some areas of the country have already imposed such public health restrictions in the face of rising COVID-19 case counts.

“The breadth and intensity of re-imposed containment measures, including impacts on schools and the availability of child care, could lead to setbacks,” the report says.

“Long breaks in employment have the potential for longer-term impacts on the income prospects of vulnerable groups.”

The report said government aid has played a key role in providing a financial lifeline to individuals and businesses.

Changes to employment insurance and new benefit programs will increase households’ disposable income, officials write, adding that the bank expects government aid to “provide important support to the economy throughout the recovery.

This report by The Canadian Press was first published Oct. 28, 2020

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Economy

Canadian retail sales slide in April, May as COVID-19 shutdown bites

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december retail sales

Canadian retail sales plunged in April and May, as shops and other businesses were shuttered amid a third wave of COVID-19 infections, Statistics Canada data showed on Wednesday.

Retail trade fell 5.7% in April, the sharpest decline in a year, missing analyst forecasts of a 5.0% drop. In a preliminary estimate, Statscan said May retail sales likely fell by 3.2% as store closures dragged on.

“April showers brought no May flowers for Canadian retailers this year,” Royce Mendes, senior economist at CIBC Capital Markets, said in a note.

Statscan said that 5.0% of retailers were closed at some point in April. The average length of the closure was one day, it said, citing respondent feedback.

Sales decreased in nine of the 11 subsectors, while core sales, which exclude gasoline stations and motor vehicles, were down 7.6% in April.

Clothing and accessory store sales fell 28.6%, with sales at building material and garden equipment stores falling for the first time in nine months, by 10.4%.

“These results continue to suggest that the Bank of Canada is too optimistic on the growth outlook for the second quarter, even if there is a solid rebound occurring now in June,” Mendes said.

The central bank said in April that it expects Canada’s economy to grow 6.5% in 2021 and signaled interest rates could begin to rise in the second half of 2022.

The Canadian dollar held on to earlier gains after the data, trading up 0.3% at 1.2271 to the greenback, or 81.49 U.S. cents.

(Reporting by Julie Gordon in Ottawa, additional reporting by Fergal Smith in Toronto, editing by Alexander Smith)

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Economy

Canadian dollar notches a 6-day high

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Canadian dollar

The Canadian dollar strengthened for a third day against its U.S. counterpart on Wednesday, as oil prices rose and Federal Reserve Chair Jerome Powell reassured markets that the central bank is not rushing to hike rates.

Markets were rattled last week when the Fed shifted to more hawkish guidance. But Powell on Tuesday said the economic recovery required more time before any tapering of stimulus and higher borrowing costs are appropriate, helping Wall Street recoup last week’s decline.

Canada is a major producer of commodities, including oil, so its economy is highly geared to the economic cycle.

Brent crude rose above $75 a barrel, reaching its highest since late 2018, after an industry report on U.S. crude inventories reinforced views of a tightening market as travel picks up in Europe and North America.

The Canadian dollar was trading 0.3% higher at 1.2271 to the greenback, or 81.49 U.S. cents, after touching its strongest level since last Thursday at 1.2265.

The currency also gained ground on Monday and Tuesday, clawing back some of its decline from last week.

Canadian retail sales fell by 5.7% in April from March as provincial governments put in place restrictions to tackle a third wave of the COVID-19 pandemic, Statistics Canada said. A flash estimate showed sales down 3.2% in May.

Still, the Bank of Canada expects consumer spending to lead a strong rebound in the domestic economy as vaccinations climb and containment measures ease.

Canadian government bond yields were mixed across a steeper curve, with the 10-year up nearly 1 basis point at 1.416%. Last Friday, it touched a 3-1/2-month low at 1.364%.

(Reporting by Fergal Smith; editing by Jonathan Oatis)

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Economy

Toronto Stock Exchange higher at open as energy stocks gain

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Toronto Stock Exchange edged higher at open on Wednesday as heavyweight energy stocks advanced, while data showing a plunge in domestic retail sales in April and May capped the gains.

* At 9:30 a.m. ET (13:30 GMT), the Toronto Stock Exchange’s S&P/TSX composite index was up 16.77 points, or 0.08%, at 20,217.42.

(Reporting by Amal S in Bengaluru; Editing by Sriraj Kalluvila)

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