Bank Of Canada Maintains Bond Buying Program, Sees Economy Strengthening

The Bank of Canada has announced that it is maintaining its current bond buying program and expressed optimism that the Canadian economy will strengthen through the end of this year.

In its latest policy statement, the central bank left its key interest rate at a historic low of 0.25%, as had been widely expected by economists, and maintained its current pace of bond purchases. However, the Bank of Canada reiterated that it expects economic growth to accelerate in the second half of this year.

The optimistic tone suggests policy makers led by Bank of Canada Governor Tiff Macklem are unfazed by weaker than expected economic data recently that had cast some doubt over the pace of Canada’s recovery from COVID-19.

Gross domestic product (GDP) in Canada dropped 1.1% in the second quarter, according to Statistics Canada, well below the 2.5% expansion the central bank forecast in July. The bank acknowledged the recent string of weak data but continued to express belief that the economy will strengthen in second half of the year.

Central bank officials pointed to supply chain disruptions as a key factor in the contraction in second quarter GDP.

The central bank retained its pledge to not raise interest rates until damage from the pandemic is fully repaired. The bank also said it would continue to buy $2 billion a week of Canadian government bonds, while reiterating that the pace of asset purchases will decline as the recovery proceeds.

The Canadian dollar weakened following the Bank of Canada’s policy announcement, falling about 0.7% to $1.2734 per U.S. dollar.