Mortgage Blog

Bank of Canada Rate Announcement - October 27, 2021

January 26, 2022 | Posted by: Ken Fadel

The BoC made its seventh interest rate decision of 2021 and for the seventh time, left its target overnight benchmark unchanged at 0.25%. This rate has remained unchanged since March 2020. 

The BoC projects Canada’s economy will grow by 5% this year before moderating to 4.25% in 2022 and 3.75% in 2023.

A recent increase in CPI inflation was anticipated in July, but the main drivers pushing prices higher – energy and pandemic-related supply bottlenecks – “now appear to be stronger and more persistent” than the BoC expected.  As such, the BoC now forecasts CPI inflation to be elevated into 2022 and ease back to the Bank’s 2% target by late 2022.

The BoC believes that in view of ongoing excess capacity, the economy continues to require considerable support. This support will be provided by the BoC’s ongoing commitment to holding its policy interest rate at what it states as the “effective lower bound” until economic slack is absorbed, and its 2% inflation target is “sustainably achieved.” In the BoC’s opinion this will occur sometime in the middle of 2022.

Considering the progress made in the economic recovery, the BoC has decided to end 'Quantitative Easing” and keep its holdings of Government of Canada bonds roughly constant. This change in policy also aligns with the approach undertaken by central bankers south of the border.

Bond yields rocketed higher today following the announcement, making it likely that fixed mortgage rates will follow suit.  The Government of Canada 5-year bond yield jumped more than 20 basis points shortly after the BoC report, before falling back to around 1.42%.  This yield is now up over a full percentage since September 2020.  The BoC’s next scheduled policy announcement is December 8, 2021.

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