Bank of Canada holds interest rate target, cites supply issues

Supply issues are hurting the automotive aftermarket, resulting in delays and higher costs. That’s just part of the reason the Bank of Canada kept its key interest rate target on hold.

The central bank issued its decision last week and warned the fourth wave of the pandemic and supply bottlenecks could take a toll on economic recovery.

It held its target for the overnight rate at 0.25 per cent, what it calls the effective lower bound.

“The governing council judges that the Canadian economy still has considerable excess capacity, and that the recovery continues to require extraordinary monetary policy support,” the bank said in its decision.

It added that it expects a stronger economy in the second half of this year, though supply issues may hold things back.

The bank also noted its commitment to hold its rate at near-zero until the economy is ready to handle an increase in rates. That isn’t expected to happen before the back half of next year.

Employment and inflation figures will be what the bank pays attention to, according to TD Bank senior economist Sri Thanabalasingam.

“However, if the employment report disappoints or inflation picks up further, the bank’s governing council will face a more difficult trade off,” he wrote in a report. “Boosting monetary stimulus could further aid the recovery, especially given the Delta variant risk, but runs the risk of accelerating price growth.”