Bank of Canada Expecting Economy to Rebound In Second Half of 2021

The Bank of Canada has decided to maintain its key benchmark interest rate unchanged at 0.25% despite a bleak economic outlook for the next couple of months because it is confident things will get better later in the year.

Central banks often use interest rate changes to manipulate the market in times of severe upward or downward pressure. Usually, interest rates are reduced in tough economic times to make it easier for consumers and businesses to take on debt to keep the economy moving.

"Reducing the effective lower bound from its current level of 25 basis points to a lower but still positive number is one of those options to provide additional monetary stimulus," explained Bank of Canada governor Tiff Macklem.

That is why the key benchmark interest rate is as low as 0.25% in the first place as lockdowns, and quarantine restrictions related to the novel coronavirus pandemic have made business conditions very difficult.

There was some suggestion the Bank of Canada might increase interest rates due to its strong economic momentum towards the end of last year. However, as the second wave of infections hit, economic conditions were again suppressed, and the idea was shelved.

With vaccines beginning to be rolled out worldwide, the Bank of Canada is confident business will start to get back to basics in the second half of the year. "Consumption is forecast to gain strength as parts of the economy reopen and confidence improves, and exports and business investment will be buoyed by rising foreign demand," the Bank said in a statement.

"Beyond the near term, the outlook for Canada is now stronger and more secure than in the October projection, thanks to earlier...