Bank of Canada maintains key rate and forecasts – .

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Bank of Canada maintains key rate and forecasts – .


The Bank of Canada today kept its target for the overnight rate at the effective lower limit of ¼ per cent, with the bank rate at ½ per cent and the deposit rate at ¼ per cent. The Bank’s extraordinary forward-looking orientation on the overnight rate trajectory is maintained. The Bank is continuing its reinvestment phase by keeping its overall holdings of Government of Canada bonds roughly constant.

The global economy continues to recover from the effects of the COVID-19 pandemic. Economic growth in the United States has accelerated, driven by consumption, while growth in some other regions is slowing after a strong third quarter. Inflation rose further in many countries, reflecting strong demand for goods amid persistent supply disruptions. The new Omicron COVID-19 variant has tightened travel restrictions in many countries and lowered oil prices, and has instilled new uncertainty. The accommodative financial conditions continue to support economic activity.

The Canadian economy grew about 5½ percent in the third quarter, as expected. Coupled with a downward revision in the second quarter, this brings the level of GDP to about 1½% below its level in the last quarter of 2019, before the start of the pandemic. Growth in the third quarter was driven by a rebound in consumption, particularly of services, as restrictions were further relaxed and higher vaccination rates improved confidence. Persistent supply bottlenecks continued to hamper the growth of other components of GDP, including non-commodity exports and business investment.

Recent economic indicators suggest that the economy experienced considerable momentum in the fourth quarter. This includes widespread job gains in recent months that have brought the employment rate back to essentially its pre-pandemic level. Job vacancies remain high and wage growth has also accelerated. Real estate activity had moderated, but seems to be regaining strength, particularly in terms of resales. Devastating flooding in British Columbia and uncertainties arising from the Omicron variant could weigh on growth by exacerbating supply chain disruptions and reducing demand for some services.

CPI inflation is high and the impact of global supply constraints spills over to a wider range of commodity prices. The effects of these constraints on prices are likely to take some time to be felt, given existing supply backlogs. Gasoline prices, which had been one of the main factors driving the CPI increase, have recently fallen. Meanwhile, the basic measures of inflation have changed little since September. The Bank continues to expect CPI inflation to remain high in the first half of 2022 and return to 2% in the second half of the year. The Bank closely monitors inflation expectations and labor costs to ensure that the forces that drive prices up do not become part of ongoing inflation.

The Governing Council considers that in view of the persistent overcapacity, the economy continues to need considerable monetary policy support. We remain committed to keeping the policy interest rate at the lower effective limit until the economic downturn is absorbed so that the 2% inflation target can be reached on a sustainable basis. In the Bank’s October projection, this will occur in the intervening quarters of 2022. We will provide the appropriate degree of monetary policy stimulus to support the recovery and meet the inflation target.

Note d’information

The next scheduled date for the announcement of the target for the overnight rate is January 26, 2022. The Bank will simultaneously publish its full outlook for the economy and inflation, including risks to the projection, in the Monetary Policy Report.

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