The Bank of Canada sustained its overnight lending rate at .25 percent today.
Stephen Poloz’s made his final decision as governor of the Bank of Canada, paving the way for new governor Tiff Macklem to navigate Canada’s central bank through the COVID-19 pandemic.
“Incoming data confirm the severe impact of the COVID-19 pandemic on the global economy,” stated the BOC in its press release.
“This impact appears to have peaked, although uncertainty about how the recovery will unfold remains high," it added.
The decision to hold its rate was anticipated, since the bank’s standard overnight lending rate has already been cut 150 basis points in anticipation of financial damage brought on by the COVID-19.
“The level of real GDP in the second quarter will likely show a further decline of 10-20 percent, as continued shutdowns and sharply lower investment in the energy sector take a further toll on output,” stated the Bank of Canada.
“Decisive and targeted fiscal actions, combined with lower interest rates, are buffering the impact of the shutdown on disposable income and helping to lay the foundation for economic recovery.”
The Bank of Canada announced it will gradually decrease a few of its asset purchase programs but is willing to reassess and adjust if conditions worsen.
Stephen Brown, senior Canada economist at Capital Economics thinks the contrary and that the BoC will actually expand its asset purchases shortly.
“With corporate borrowing spreads still very elevated compared to last year, we think new governor Tiff Macklem will opt to expand the Bank’s corporate bond purchase program, or announce a funding for lending scheme, in the coming months,” said Brown.
Other experts voiced their opinions as well, James Laird, co-founder of Ratehub explained “The historically low mortgage rates currently in the market are here to stay until the economy approaches the level it was at before the pandemic started,”
This means that anyone with a variable rate can expect prime to remain unchanged. Fixed rates will stay near historic lows," he added.
Tim Macklem's first order of business will come July 15, where he will announce his outlook on the economy. Many predict he will supplement asset purchases.