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Bank of Canada holds rate, forecasts GDP decline of 7.8% this year

BY , Jul 15, 2020 3:41 PM - REPORT AN ERRORLAST UPDATED ON Jul 15, 2020 4:20 PM

Bank of Canada Governor Tiff Macklem holds a press conference at the Bank of Canada amid the COVID-19 pandemic in Ottawa on Monday, June 22, 2020. The Bank of Canada will update its outlook for the Canadian economy today as part of Macklem's first interest rate announcement since becoming governor.THE CANADIAN PRESS/Sean Kilpatrick

The Bank of Canada is holding its key interest rate at 0.25 per cent in response to what it calls the ``extremely uncertain'' economic outlook from the COVID-19 pandemic, and plans to keep it there until the picture improves.

In its updated outlook, the bank expects the economy to contract by 7.8 per cent this year.

The central bank's report pegs the annual inflation rate at 0.6 per cent this year, rising to 1.2 per cent in 2021 and 1.7 per cent in 2022.

Its inflation target is 2 per cent, and the bank says it will maintain the current rate until that target is achieved.

The forecasts come with a caution that the numbers could be thrown off if there is a severe second wave of the novel coronavirus, for instance.

In a statement announcing the decision, the bank says the rate will have to stay low to provide ``extraordinary monetary policy support'' to help recuperate from the economic impact of COVID-19.

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