Bank of Canada holds rate, forecasts GDP decline of 7.8% this year

Bank of Canada holds rate

The Bank of Canada is holding its key interest rate at 0.25 per cent in response to what it calls the "extremely uncertain" economic outlook from the COVID-19 pandemic, and plans to keep it there until the picture improves.

In its updated outlook, the bank expects the economy to contract by 7.8 per cent this year.

The central bank's report pegs the annual inflation rate at 0.6 per cent this year, rising to 1.2 per cent in 2021 and 1.7 per cent in 2022.

Its inflation target is 2 per cent, and the bank says it will maintain the current rate until that target is achieved.

The forecasts come with a caution that the numbers could be thrown off if there is a severe second wave of the novel coronavirus, for instance.

In a statement announcing the decision, the bank says the rate will have to stay low to provide "extraordinary monetary policy support" to help recuperate from the economic impact of COVID-19.

The central bank also says it will continue to snap up federal bonds at a rate of $5 billion per week to keep interest rates low across the yield curve.

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