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Bank of Canada Bank sees no economic recovery to pre-COVID-19 levels until 2022

TORONTO (Reuters) - Bank of Canada held interest rate steady at 0.25% on Wednesday and said economic growth will not return to pre-pandemic levels until 2022. The central bank was also cautious on U.S. growth and assumed there would not be a global second wave of COVID-19.

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COMMENTARY

MARK CHANDLER, HEAD OF CANADIAN FIXED INCOME AND CURRENCY STRATEGY AT RBC CAPITAL MARKETS:

“They said the (policy) target’s going to remain in place until we reach the inflation target. Previously it was until the recovery was well underway. They imply the same thing, that accommodation remains in place really, for the medium term, or throughout the forecast horizon for the Bank.”

“All their market functioning policies, liquidity policies have been very very effective. That’s why they pared back the purchases of term repos in June. They didn’t make any adjustments to them at this point, which is prudent, because if there is flare up or need, they’re still there. But they did note that demand for all those liquidity programs has waned. There’s certainly no need to introduce new ones.”

ANDREW KELVIN, CHIEF CANADA STRATEGIST AT TD SECURITIES:

“Not a lot of surprises in this. No change to the effective lower bound because it would have been folly to raise any doubt on that. They are continuing with all their extraordinary policy measures.”

“The one innovation I see people pointing to, suggesting that they are bringing forward guidance into this. I feel like that’s a bit of a stretch. All it says is that they will keep the overnight rate at the effective lower bound until the inflation target is sustainably achieved, which is sort of the definition of inflation targeting. So I think that sort of guidance is already implicit in what the bank was doing. So I am not sure I would even consider that much new.”

“I would say that I think their forecast errs on the pessimistic side ... which might suggest scope for them to see a more upbeat tone in October or next January’s MPR.”

DOUGLAS PORTER, BANK OF MONTREAL CHIEF ECONOMIST:

“While there was no specific change in policy, the bank has delivered a soft form of forward guidance. It will be interesting to see in the months ahead if they become a bit more specific, but they’ve made it pretty clear that they’re going to keep the pedal to the metal in terms of easy policy until the economy has recovered.”

“The other thing that stands out here is a very specific forecast on the economy. The decline in GDP this year is actually about a percentage point deeper than what the consensus had in last week’s fiscal update. I personally think that’s on the cautious side. Obviously we’ll have to wait and see how things unfold in the months ahead but I would regard that as a relatively pessimistic forecast.”

Reporting by Jeff Lewis, Fergal Smith, Nichola Saminather; Editing by Denny Thomas

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