The Bank of Canada left interest rates alone, new governor Tiff Macklem said “As the economy moves from reopening to recuperation, it will continue to require extraordinary monetary policy support. The Governing Council will hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2% inflation target is sustainably achieved.” This is against the worst economic downturn since the Great Depression of the last century. The crisis has already taken the bank into uncharted waters, forcing it to cut the benchmark rate to near zero, injecting hundreds of billions in cash into financial markets and undertaking the first-ever foray into large-scale asset purchases.
The BoC is endeavouring to ensure that it will provide forward guidance regarding eventual policy normalization. This will allow economists to ascertain where the BoC is going without any surprises.
The Dow and S&P 500 were higher in midday trading as news from Moderna on its coronavirus vaccine candidate lifted expectations of a quicker economic recovery. The Dow traded 60 points higher, or 0.2%, while the S&P 500 advanced 0.1%. Goldman Sachs also rose more than 1% to contribute to the gains. The Nasdaq Composite, however, traded lower as shares of major tech companies were under pressure.
The Canadian dollar rallied on the positive vaccine news plus the somewhat bullish statements from the BoC on what it will do to support Canada’s economy. Expect further volatility.
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