The Bank of Canada left its main interest rate unchanged Wednesday, while further scaling back its bond-buying program on the expectation that stronger growth, beginning this quarter, will help eliminate pandemic-induced spare capacity by the second half of next year.
In a statement describing the rate decision, the central bank said it would reduce the amount of bonds it purchases a week, in an effort to keep a lid on long-term borrowing costs, to 2 billion Canadian dollars, or the equivalent of $1.6 billion, from C$3 billion. When initially launched in the spring of 2020, the Bank of Canada was targeting minimum purchases of C$5 billion a week.
The adjustment to the bond-buying program, also known as quantitative easing, “reflects continued progress towards recovery and the bank’s increased confidence in the strength of the Canadian economic outlook,” the central bank said in the statement.
The central bank also committed to keeping its key interest rate near zero, or 0.25%, until economic slack is absorbed — a benchmark it expects to reach in the second half of next year. It will do so even though it now anticipates inflation to remain at or above 3%, or well above its preferred target of 2%. The Bank of Canada sets interest rates to reach and maintain 2% inflation.