Thank you, Chair, for your kind words to both of us. Senior Deputy Governor Wilkins and I are very pleased to be back to discuss our monetary policy report with you and the committee, and also to discuss the outlook for the Canadian economy.
The main message is that we will get through this pandemic, but it's going to be a tough slog, and the Bank of Canada will be there with Canadians every step of the way.
Let me briefly summarize our outlook for the economy.
Our projection is highly conditional on our assumptions about the virus.
We assumed that authorities won’t need to reinstate the sort of extensive and widespread containment measures we saw in the spring. But we can expect successive waves of the virus to require localized restrictions. We also assumed that vaccines and effective treatments will be widely available by mid-2022. Since we released the Monetary Policy Report, the MPR, four weeks ago, news about vaccines has been encouraging, while virus cases have continued to rise and containment measures have escalated.
Since June, the Canadian economy has bounced back sharply as many businesses have reopened. We have regained close to 80% of the jobs lost since the start of the pandemic. But the economy still has more than 600,000 fewer jobs than it did before the pandemic. The current job losses are concentrated in the services sector, particularly in lower-wage jobs where physical distancing is difficult. That is why the income support measures put in place have been so important for the recovery.
We judge that the very rapid growth of the reopening phase is now over, and the economy has entered in the slower-growth recuperation phase. For 2020 as a whole, we expect that the economy will have shrunk by about 5.5% percent. Given the math involved in calculating annual growth rates, we expect annual growth to average almost 4% in 2021 and 2022. But we anticipate that this growth will be uneven across sectors and choppy over time. Some parts of the economy will simply be unable to completely reopen until a vaccine becomes widely available. And some regions that were weaker before the pandemic—such as the energy-intensive parts of Canada—will face greater difficulties than others. When we add it up, we project that the economy will still be operating below its potential into 2023.
Inflation is also unusually weak. and should remain below our target range of 1 to 3% until early next year. After that, we project it will rise gradually. But with the economy continuing to operate below its potential, inflation is projected to remain less than 2% into 2023.
The outlook and the historic nature of the COVID-19 shock mean that the economy will continue to need extraordinary monetary policy support as it recuperates, so let me spend a few minutes discussing our policy response.
We lowered our policy interest rate to 0.25%, which we judge to be its effective lower bound. We have committed to keeping our policy interest rate at its effective lower bound until slack is absorbed so that the 2% inflation target is sustainably achieved. In our current outlook, this takes us into 2023.
Our forward guidance is being reinforced and supplemented by a program of quantitative easing, or QE. I want to take a moment to explain how QE works and discuss the adjustments to our program that we announced last month.
Normally, when we want more monetary stimulus to achieve our inflation target, we lower the target for the overnight interest rate. That leads to lower interest rates further out on the yield curve at the maturities where households and businesses typically borrow.
When our policy interest rate is at its effective lower bound, QE provides an additional way of reducing the interest rates that matter for households and businesses. By increasing the demand for government bonds, QE acts to lower their interest rates. This reduces the borrowing costs for households and businesses. In this way, QE is another tool that supports the spending and investments that are needed to help create jobs and get the economy back to capacity, and to achieve our inflation target. We buy these bonds on the secondary market from financial institutions, and we pay for the bonds by creating settlement balances, or central bank reserves. This ability to create reserves is a very special ability. It's something that only central banks have. That’s why it’s important that central banks are independent from governments.
At the outset of the pandemic, in March and April, core credit markets were seizing up as economic activity plummeted and uncertainty soared. If core funding markets aren’t working, neither is the economy, and we can’t implement monetary policy. So the bank launched a number of programs to restore market functioning, including the Government of Canada bond purchase program. The program was launched at a pace of at least $5 billion per week. Purchases were mostly of shorter-maturity bonds where issuance was strongest.
These purchases led to a substantial increase in the size of our balance sheet. We were able to move more aggressively because before the pandemic, the bank’s balance sheet was small compared with those of other central banks. In the first chart, which we have provided to you, you can see that the value of assets we hold relative to the size of our economy remains relatively low compared with that of our peers.
As other central banks took similar actions, global financial conditions stabilized. This, together with our own actions, restored market functioning in Canada. Since July we have scaled back or ended the active use of many of the programs we had set up when markets were not functioning properly. In particular, we stopped buying bankers’ acceptances. We're not buying Canada mortgage bonds or provincial money market securities. Our corporate bond purchase program has been used very infrequently since July. We also took a series of steps to reduce our purchases of Government of Canada treasury bills in the primary market. At the peak, we were buying as much as 40% of the T-bill auction. As of November 24, we're buying in a range of zero to 10%. The focus of our bond purchases has now shifted squarely to providing the monetary stimulus required to support the recovery and get inflation back to target. As you can see in the second chart, our balance sheet has been relatively stable since July.
This brings me to today. Markets continue to function well. We're providing exceptional forward guidance, reinforced and supplemented by our bond purchases. Our guidance has anchored interest rates at the short end of the yield curve. That means we no longer need to buy as many short-term government bonds as we did at the start of the pandemic.
We've recalibrated, or adjusted, our quantitative easing program. To increase the efficiency of our purchases, we're buying fewer bonds at shorter maturities, and more at longer maturities. This shift is increasing the stimulative impact of our QE program per dollar purchased. Essentially by concentrating on purchase at longer maturities, we can have a bigger impact on the interest rates—
