Canadian Dollar Gains As Central Bank Raises Economic Outlook By

© Reuters.

By Dhirendra Tripathi – The Canadian dollar strengthened against the greenback after some initial hiccups in Wednesday’s trade, boosted by the country’s central bank forecasting a better economy.

Bank of Canada kept the key interest rate unchanged at 0.25%.

The Bank said it expects economy to grow 6.5% in 2021, up from its January forecast of 4%, with real GDP growth of 3.7% in 2022, down from a previous forecast of 4.8%. It now sees U.S. economic growth this year at 7%, up from 5%.

The Bank said the economy still needs “extraordinary monetary policy support” and that it is committed to holding the policy interest rate lower “until economic slack is absorbed so that the 2% inflation target is sustainably achieved.”

Nonetheless, improving economic indicators are behind the bank’s decision to trim its federal government bond purchases that were aimed at reviving the economy.

Effective April 26, weekly net purchases of government of Canada bonds will be adjusted to a target of $3 billion, the central bank said.

Like what many in several markets have feared their central banks will do, it suggested rates could rise sooner than the previous forecast of sometime in 2023.

Canada’s annual inflation rate doubled to 2.2% in March, in part due to a statistical difference caused by the sharp deceleration last year during the pandemic and because of rising energy prices, Statistics Canada said on Wednesday.

Over the next few months, inflation is expected to rise temporarily to around the top of the 1% to 3% inflation-control range, the central bank said.


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