The Bank of Canada on Wednesday held its key lending rate at a low 0.25 percent, while expressing “increased confidence” in the nation’s economy due to progress fighting the coronavirus pandemic.
The central bank said it was committed to maintaining the rate level until excess production capacity in the economy is absorbed, predicting inflation would return to its target of two percent in late 2022.
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“With higher gasoline prices and on-going supply bottlenecks, inflation is likely to remain above 3 percent through the second half of this year,” it said.
“The factors pushing up inflation are transitory, but their persistence and magnitude are uncertain and will be monitored closely.”
The bank now expects GDP growth of about six percent in 2021 — a little slower than previously expected — and has revised up its 2022 forecast to 4.5 percent.
“The third wave of the virus slowed growth in the second quarter,” it said.
“However, falling Covid-19 cases, progress on vaccinations and easing containment restrictions all point to a strong pickup in the second half of this year.”