The Bank of Canada maintains its target key rate at 0.25% – .

The Bank of Canada maintains its target key rate at 0.25% – .


Canada’s central bank has warned that the cost of living will continue to rise next year, but signaled that it was not yet ready to pull on its key lever to bring inflation under control.

The annual rate of inflation in October rose to 4.7%, a pandemic-era peak and the fastest year-over-year gain in the Consumer Price Index in 18 years .

The Bank of Canada has said high inflation rates will continue into the first half of next year, but are expected to fall back by the second half of 2022 into its comfort zone of between 1% and 3%.

By the end of next year, the bank expects the annual inflation rate to drop to 2.1%.

While the trajectory of inflation and the economy largely follows the expectations of the central bank, the statement released on Wednesday said the bank is “closely monitoring inflation expectations and labor costs” for make sure they don’t take off and spiral up prices.

Comments on the last scheduled rate announcement of the year left the policy rate at its lowest level of 0.25%, unchanged from its January level at the start of the COVID-19 pandemic.

The announcement also states that the bank does not plan to hike the policy rate for some time between April and September next year, which is unchanged from its previous forecast.

“Overall, the (Bank of Canada) has effectively resisted spitting into anyone’s vacation,” wrote Derek Holt, head of capital markets economics at Scotiabank, in a note. “They stayed on track with advice to start considering rate hikes next April. “

When the bank moves, it is likely to act quickly and furiously, said BMO chief economist Douglas Porter. The bank has a habit of raising rates quickly from emergency levels, he said, suggesting four rate hikes by the end of 2022.

“When the Bank of Canada thinks interest rates need to go up, it doesn’t tend to wait, it tends to move relatively quickly,” Porter said.

The bank said the economy appeared to have “considerable momentum” towards the end of the year after growing at an annualized rate of 5.4% in the third quarter of the year, a hair short of the forecast. Bank of Canada in October.

The Bank of Canada statement noted that quarterly growth brought total economic activity down to about 1.5% of its level in the last quarter of 2019, before COVID-19 hit Canadian shores.

Likewise, the labor market posted a stronger-than-expected performance in November, pushing the share of middle-aged workers with jobs to an all-time high and leaving the unemployment rate 0.3 percentage point above from its pre-pandemic level in February 2020.

Still, the banknotes are feeling the headwinds of the devastating flooding in British Columbia and the uncertainties of the Omicron variant that could throw another wrench into booming supply chains and scare consumers away from spending on services.

TD Senior Economist Sri Thanabalasingam said the bank could move on rates earlier if Omicron proves to be less of a health concern than initially feared, noting that the economy can handle it “with rising inflation and the labor market on solid foundations ”.

A rate hike would impact the interest earned on variable rate mortgages, potentially straining the finances of households which, in 2021, added $ 121.5 billion in mortgage debt, including $ 38 billion between July and September.

“This is going to be, I think, particularly problematic for Canadians who have taken out sizable mortgages, especially when interest rates have been low for so long,” said Tashia Batstone, president of FP Canada, a planning organization. financial association.

“What this means is that you have to work harder to stay on budget, you have to watch the debt that you take on, and in particular make sure that you can’t have the flexibility when it comes to mortgages. “

This report by The Canadian Press was first published on December 8, 2021.


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