Bank of Canada Rate Announcement - April 13, 2022
April 13, 2022 | Posted by: Ken Fadel
Earlier today as expected, the BoC took direct aim at inflation by increasing its benchmark overnight rate by 50 bps to 1.00%. This is the first time in 22 years that the overnight rate increased by 50 bps in one move and its highest level since March 2020.
The BoC also announced that effective April 25th, it will begin quantitative tightening and no longer adding Government of Canada bonds to its balance sheet.
In discussing these moves, the BoC identified the invasion of Ukraine as a “new economic uncertainty” that has led to additional supply disruptions/constraints and that it is “weighing on activity.”
Other highlights included in the release:
- Economic growth is strong, and it looks like it has picked up more in the first quarter than projected in January
- Businesses are increasingly reporting they are having difficulty meeting demand, and as a result can pass on higher input costs to the customers
- While the pandemic marches on, high vaccination rates have reduced its health and economic impacts
- Housing market activity, which has been just humming along, is expected to “moderate”
Current CPI inflation of 5.7% driven by rising energy, food prices and supply disruptions in concert with strong global and domestic demand is greater than the BoC’s January Monetary Policy Report forecast.
CPI inflation is now expected to average around 6% for the first half of 2022 and remain well above the target range throughout the year before easing “to about 2.5% in the second half of 2023” and returning to the Bank’s 2% target in 2024.
The BoC forecasts that Canada’s economy will grow by 4.25% this year before slowing to 3.25% in 2023 and 2.25% in 2024.
The timing and pace of further rate increases will be guided by the BoCs commitment to achieving its 2% inflation target while monitoring the health of the economy. “With the economy moving into excess demand and inflation persisting well above target…interest rates will need to rise further.”
BoC’s next scheduled rate announcement is June 1, 2022.