Bank of Canada Won’t React to Temporary Spike in Inflation: Canada’s Two-Year Financial Markets Outlook—April 2021

The Conference Board of Canada, 14 pages, April 12, 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, as it will take time to repair the damage that the pandemic did to the economy.
  • Inflation will spike higher this spring but moderate in the second half of 2021. Consumer prices will increase by 2.4 per cent this year and 2.0 per cent in 2022.
  • The Canadian dollar is expected to trade in the US$0.79–US$0.80 range over the forecast period. After dropping to US$0.72 last spring, the loonie rebounded, thanks to rising world oil prices and a slumping greenback.
  • Despite rising long-term bond yields in the U.S., the Fed likely won’t increase interest rates before 2023, as the labour participation rate and the unemployment rate among low-income Americans remain well below pre-pandemic levels.
  • The Bank of Japan’s controversial policy of purchasing equities will continue over the near term. The concern is that the ongoing central bank intervention has compromised the independence of equity markets.

Table of Contents

  • Key findings
  • Financial markets snapshot
  • Overview
  • Interest rates to stay low until early 2023
  • Economy will reach its full potential at the end of 2024
  • Canadian dollar will gradually appreciate in line with rising oil prices
  • International highlights
  • Methodology

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