Bank of Canada holds rates steady despite soaring inflation


The Bank of Canada surprised the markets on Wednesday by keeping its key rate at 0.25%, while warning Canadians that interest rates will eventually rise.

The central bank decided to hold rates steady despite soaring inflation and a stronger-than-expected economic recovery. Prior to the decision, Bloomberg data showed the implied probability of a rally on Wednesday was around 70%.

In its statement, the bank acknowledged that the slowdown in the economy has been resorbed, but that the Omicron variant of COVID-19 is weighing on growth in the first quarter.

He also said that while short-term inflation expectations have risen, longer-term projections are still anchored on the bank’s 2% target.

“The bank will use its monetary policy tools to ensure that higher near-term inflation expectations do not embed in ongoing inflation,” it said in the statement, while adding that it expects interest rates to rise in the future.

In the bank’s Monetary Policy Report (MPR), it said it expected inflation to remain close to 5% in the first half of the year, bolstered by ongoing supply chain issues and rising food and commodity prices, before falling back to 2.3% in 2023. .

“The Bank of Canada deemed that a new pandemic wave was not the right time to embark on a rate hike cycle, or simply wanted to formally end its forecast before pulling the trigger, but n ‘has left no doubt that rate hikes are coming,’ said Avery Shenfeld, chief economist at CIBC Capital Markets, in a statement to clients.

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