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Chief economist update: Bank of Canada walks the talk

Browse through recent monetary policy statements released by many central banks around the world and you'll notice a central theme - economic recovery starting this year powered by vaccinations, eased restrictions (in some countries), adaptation by both businesses and consumers to coronavirus controls on their normal activities.

This optimism is collectively embodied by upward revisions in the 'OECD Economic Outlook, Interim Report March 2021' - "Global GDP growth is now projected to be 5.6% this year, an upward revision of more than 1 percentage point from the December OECD Economic Outlook" - and the IMF's 'World Economic Outlook Update, January 2021' - "Policy Support and Vaccines Expected to Lift Activity".

Waxing positive they may (nearly) all be, they haven't walked their talks - preferring to wait for days better than the optimistic ones they anticipate. Not the Bank of Canada (BOC).

It decided to taper QE at the conclusion of its April 21 meeting, to wit: "The Bank of Canada today held its target for the overnight rate at the effective lower bound of 1/4 percent, with the Bank Rate at 1/2 percent and the deposit rate at 1/4 percent. The Bank continues to provide extraordinary forward guidance on the path for the overnight rate, reinforced and supplemented by the Bank's quantitative easing (QE) program. Effective the week of April 26, weekly net purchases of Government of Canada bonds will be adjusted to a target of $3 billion. This adjustment to the amount of incremental stimulus being added each week reflects the progress made in the economic recovery."

This is because...

"Global economic growth is stronger than was forecast in the January Monetary Policy Report (MPR)..."

"In Canada, growth in the first quarter appears considerably stronger than the Bank's January forecast, as households and companies adapted to the second wave and associated restrictions. Substantial job gains in February and March boosted employment. However, new lockdowns will pose another setback and the labour market remains difficult for many Canadians, especially low-wage workers, young people and women. As vaccines roll out and the economy reopens, consumption is expected to rebound strongly in the second half of this year and remain robust over the projection."

"...strong growth in foreign demand and higher commodity prices are expected to drive a robust recovery in exports and business investment."

Still, the BOC thinks that "the recovery continues to require extraordinary monetary policy support".

But in taking the first step towards normalising monetary policy, the BOC sends a powerful message that its optimism is more than lip service.

Read our full COVID-19 news coverage and analysis here.

Read more: Bank of CanadaIMF