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Bank of Canada update

July 14: Loonie pares gains after BOC tapers stimulus

As expected, Canada’s central bank today left its main interest rate steady at record lows of 0.25%.
As expected, Canada’s central bank today left its main interest rate steady at record lows of 0.25%.

Canada’s dollar was broadly steady around 1.25 after mixed guidance from the Bank of Canada.

As expected, Canada’s central bank today left its main interest rate steady at record lows of 0.25%, and announced it would taper its weekly bond buying program to C$2 billion from C$3 billion.

The bank sketched a brighter outlook for growth over the latter half of the year after an expected virus-induced slowdown in the second quarter. Still, the BOC slightly revised down its outlook for 2021 growth which is sees ‘around 6%,’ compared to its previous estimate in April of 6.5%.

On the hot button issue of inflation, the bank expects that transitory forces will keep inflation above 3% over the balance of the year before moderating toward its 2% goal next year. The bank said it was keeping a vigilant eye on inflation given the ‘persistence and magnitude’ of its rise to a 10-year high of 3.6%.

While Ottawa sees the economy turning the corner after the third wave of the virus recently pumped the brakes, it acknowledged an uncertain and uneven recovery ahead due the ‘growing concern’ that variants of Covid-19 pose to the economic outlook.

By striking somewhat of a mixed to neutral tone today, Canada’s central bank appears to be in wait and see mode.

USD/CAD was broadly flat compared to being down around 0.4% near 1.2460 before the BOC’s decision.

Canada’s central bank issues its next policy decision on September 8.