Bank of Canada to hold rates at 0.25% through end of next year: Reuters poll

BENGARULU (Reuters) - The Bank of Canada will hold interest rates at a record low of 0.25% until at least the end of next year as the economy reels from the coronavirus crisis, according to nearly every economist polled by Reuters.

A sign is pictured outside the Bank of Canada building in Ottawa, Ontario, Canada, May 23, 2017. REUTERS/Chris Wattie

Canadian provinces have started to slowly reopen after the coronavirus pandemic - which has infected about 88,000 people in Canada so far and killed nearly 7,000 - led to a near-halt in economic activity, likely dragging the country into its deepest recession on record.

All but one of 24 economists polled May 26-28 who provided forecasts through to the end of 2021 had the central bank holding its overnight rate at 0.25%, following a cumulative 150 basis points of cuts since the start of the outbreak.

“It will still be a few months before it becomes clear how the economy and housing market is coping, but the downside risks suggest that the bias is still likely to be toward further policy support,” said Stephen Brown, senior Canada economist at Capital Economics.

Most economists expect the BoC - which launched a quantitative easing program in March, buying up to C$10 billion of corporate bonds and C$50 billion of provincial bonds to support the economy - to expand its asset purchases further.

But when asked to estimate the size of the central bank’s balance sheet by end-year, which many economists are forecasting for the U.S. Federal Reserve and European Central Bank, only two were ready to provide a number, both saying $650 billion.

BoC Governor Stephen Poloz, who will be succeeded by Tiff Macklem on June 3, said recently the damage done by the global pandemic might not be as bad as some fear and talk about it was “a little too dire.”

Economists were evenly split when asked about his recent comments, with seven saying they were “too optimistic” and seven saying “about right.” No respondent said his remarks were too pessimistic.

The economy will contract a staggering 37.5% on an annualized basis this quarter, according to a separate Reuters poll.[ECILT/CA]

“Policymakers and financial markets are too optimistic that the current crisis is only a supply side shock, allowing the economy to bounce back once restrictions are lifted,” said Brendan LaCerda, senior economist at Moody’s Analytics.

“The deterioration in the labor market is much more permanent, begetting a long slow recovery.”

Reporting and polling by Mumal Rathore; Editing by Ross Finley and Andrea Ricci