Bank of Canada Remains Cautious Despite Accelerating Growth: Canada’s Two-Year Financial Markets Outlook

The Conference Board of Canada, 14 pages, July 27, 2021
Issue Briefing
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This quarterly economic forecast presents the medium-term outlook for the Canadian economy. This release focuses on financial markets. For an overview of all major components of the economy, go to the Canadian Outlook main page.

Document Highlights

  • The Bank of Canada won’t increase short-term interest rates until the early part of 2023. That’s because while economic growth is surging, labour markets remain far from normal.
  • Inflation spiked higher this spring due to base effects and shortages of some goods. But it will subsequently moderate in the latter half of 2021. Consumer prices will increase by 3.3 per cent this year and 2.6 per cent in 2022.
  • The Canadian dollar is expected to trade in the US$0.80 range over the forecast period. After dropping to US$0.72 last spring, the loonie has rebounded, mainly due to rising world oil prices linked to a gradual reopening of the global economy.
  • The U.S. Federal Reserve likely won’t increase interest rates sooner than 2023, as the unemployment rate for low-income Americans remains well above pre-pandemic levels. The Fed could change its mind if the spike in inflation in the spring persists through the summer and autumn.
  • The Bank of Japan has little choice but to continue running a highly accommodative monetary policy, as attempts to return inflation to the 2.0 per cent mark have, once again, failed.

Table of Contents

Key findings
Financial markets snapshot
Overview
Interest rates to stay low ... for now
Canadian dollar to trade in the US$0.80 range
International highlights
Methodology

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