Mortgage Blog

Bank of Canada Rate Announcement - January 26, 2022

January 26, 2022 | Posted by: Ken Fadel

The BoC has once again left its benchmark policy rate unchanged at 0.25% in its first announcement of the year but also indicated that it would soon end its commitment to hold its policy rate at the effective lower bound as interest rates “will need to increase.”

It’s become a delicate balancing act as consumer price inflation (CPI) reached its highest level in Canada since 1991 last month and the Omicron variant sweeping the country.  December’s annual inflation of 4.8% represented a 30-year high but the economy also continues to be significantly affected by business closures and other Covid related restrictions.  “The Omicron variant is weighing on activity in the first quarter,” the BoC stated in its announcement. “While its economic impact will depend on how quickly this wave passes, it is expected to be less severe than previous waves.  Economic growth is then expected to bounce back and remain robust over the projection horizon, led by consumer spending on services, and supported by strength in exports and business investment.”

The announcement addressed inflation, noting that core measures have continue to increase since October and CPI was “well above” its target range.  It also stated that it expected this figure to “decline reasonably quickly” to about 3% by the end of the year.  “Near-term inflation expectations have moved up, but longer-run expectations remain anchored on the 2% target. The Bank will use its monetary policy tools to ensure that higher near-term inflation expectations do not become embedded in ongoing inflation.”

Economists remain divided over the timing and amount of future benchmark rate changes, with some predicting as many as five rate hikes in 2022 pushing the benchmark rate up to 1.5% by the end of the year and others highlighting the difficulty of increasing rates as the pandemic continues.

The BoC’s next policy rate announcement is scheduled for March 2nd, and its next full economic outlook is set to be released on April 13th.

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