Although the Bank of Canada provided a rosy revision to its economic outlook Wednesday, it kept its key rate at 0.25 per cent in a sign that it won’t count its chickens before they hatch.
The improving conditions are why the bank also said Wednesday it will slow down federal government bond purchases that form part of its quantitative-easing program designed to assist the economy during.
It raised expectations for when the economy will be strong enough to handle a increase in rates. The bank now observes that an inflation back at its two per cent target later in 2022, rather than some time in 2023.
However, first the economy faces a test in the form of the deadly third wave of the COVID-19 pandemic, which the bank said hamper the pace of the recovery and growth in the jobs market particularly highly affected sectors.
Governor Tiff Macklem said much will rest on whether households and businesses show the same resiliency as they did during the second wave of the pandemic at the start the year.
“Vaccines are rolling out, and there are brighter, brighter days ahead and reflecting that we have revised up our outlook,” Macklem said during a late-morning press conference.
“But … it is still going to take some time to get to a complete recovery. This third wave is a setback. It is straining health-care systems in part of the country.”
He added that the most affected will be the hardest-hit sectors of the economy.
The impact will be sharpest on high-contact sectors like restaurants, the bank said, adding that the ripples will prolong the unevenness in the labour market’s recovery from historic job losses one year ago.
The bank said it expects harder restrictions during this third wave of COVID-19 to lead to job losses, mostly in low-wage and part-time work, as part of a material, but temporary effect on the economy.
It will take time for jobless Canadians and those looking to join the labour force to find work and new jobs, which the bank said may lead some households to hold on to the savings gathered over the past year as a safety net instead of spending them all at once.
