OTTAWA, July 15 (Xinhua) -- The Bank of Canada announced on Wednesday that it will keep its interest rate unchanged at 0.25 percent because of the extremely uncertain economic outlook under the impact of COVID-19 pandemic.
Canada's economic activity will not return to pre-pandemic levels until 2022 and interest rates will remain low for an extended period, the Canadian central bank said in its monetary policy report.
The bank's interest rate has been at 0.25 percent since March when it was reduced by half a percentage point in response to the economic fallout from COVID-19.
The bank said it expects the economy to contract by 7.8 percent this year, driven downward by a year-over-year contraction of 14.6 percent in the second quarter.
It predicted that the annual inflation rate will be 0.6 percent this year, rising to 1.2 percent in 2021 and 1.7 percent in 2022.
The bank's outlook is based on the assumption that there won't be a broad-based second wave of the pandemic, that lockdowns will be gradually lifted, and the pandemic will have run its course by mid-2022 thanks to a vaccine or effective treatment.
The monetary policy report said there isn't enough information to forecast how deep the economic scarring will be from business closures or widespread job losses.
The bank sees a long, slow recovery and will keep its quantitative easing programs in place until that recovery is well underway, Bank of Canada Governor Tiff Macklem said at a press conference on Wednesday.
"We recognize that households and businesses are facing an unusual amount of uncertainty. Against that background, we are being unusually clear that interest rates are going to be low for a long time," Macklem said.