As the outlook for both the global and Canadian economies continues to improve, the Bank of Canada announced that it will hold its target for the overnight rate at the effective lower bound of 0.25%, while keeping the bank rate at 0.5% and the deposit rate at 0.25%.

The bank's announcement suggests there are new signs of a strong economic recovery, as it now projects global GDP will grow nearly 7% this year, about 4% in 2022, and almost 3.5% in 2023. As for Canada's GDP, the bank expects growth to reach 6.5% in 2021, and then moderate to around 3.75% in 2022, and 3.25% in 2023.

With housing construction and resales are at historic highs, driven by the desire for more living space, low mortgage rates, and limited supply, the bank said it will continue to monitor the potential risks associated with the rapid rise in house prices.

And while the bank's announcement does include an optimistic outlook for Canadian and global economic recovery, strong commodity prices, job gains in January and February, and a strong housing market, the pandemic's third wave in Canada was the only note of caution.

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"Activity has proven more resilient than expected in the face of the COVID-19 pandemic, and the rollout of vaccines is progressing. A number of regions, including Canada, are experiencing a difficult third wave of infections and lockdowns. The more contagious variants of the virus are straining healthcare systems and affecting hard-to-distance activities, and have introduced a new dimension of uncertainty. The recovery remains highly dependent on the evolution of the pandemic and the pace of vaccinations," said the bank in a statement.

Bank of Canada governor, Tiff Macklem, said the bank will adjust its weekly net purchases of Government of Canada bonds, while also forecasting that the current rock-bottom interest rates (also known as "the effective lower bond") could come to an end sooner than initially expected.

"We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2% inflation target is sustainably achieved," the Bank of Canada said in its Wednesday statement. "Based on the bank's latest projection, this is now expected to happen sometime in the second half of 2022."

The bank had initially said it had planned to maintain the low 0.25% rate until “economic slack” from the pandemic is absorbed, which was likely to be until at least 2023.

"The announcement is bad news for anyone who currently has a variable rate mortgage as they should now be prepared for prime to move sooner than expected," said James Laird, co-founder of and President of CanWise Financial mortgage brokerage.

"Now is a good time for anyone currently holding a variable rate to consider locking into a fixed rate. However, staying in a variable rate has proven to be the most cost-effective strategy for the last 50 years," says Laird.

Laird added that the positive outlook also means that fixed rates should continue to drift up throughout the remainder of 2021.

"Anyone shopping for a home should get a pre-approval which will hold today’s rates for up to 120 days and allow them to move quickly in the competitive spring market,” said Laird.

With any forecast, especially amid the pandemic, the outcome remains unknown. Though, as vaccines roll out and the economy reopens, the bank says consumption is expected to rebound strongly in the second half of 2021.

The bank has scheduled its next overnight rate announcement for June 9.

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