Bank of Canada holds key interest rate target at 0.25%


Ottawa — Canada’s central bank has warned that rising living costs will continue next year, but has indicated that it is not yet ready to pull the key lever to curb inflation.

Inflation rose to 4.7% in October, the highest level in the pandemic era, and the consumer price index rose fastest year-on-year in 18 years.

The Bank of Canada said high inflation will continue until the first half of next year, but should return to a 1-3 percent comfort zone by the second half of 2022.

Banks predict that annual inflation will drop to 2.1% by the end of next year.

The path to inflation and the economy closely follows central bank expectations, but a statement released Wednesday said banks “carefully monitor inflation expectations and labor costs.”

Comments on the interest rate announcement scheduled for the end of this year remained unchanged from January when the COVID-19 pandemic occurred, leaving major interest rates at a bottom of 0.25%.

The announcement also said banks did not expect to increase the trend setting rate until some time between April and September next year. This has not changed from the previous guidance.

“Overall, (the Bank of Canada) did not resist spitting on anyone’s holiday,” said Derek Holt, Dean of the Department of Capital Markets Economics at Scotiabank. “They got off to a good start with guidance to start raising rates soon in April next year.”

Douglas Porter, chief economist at BMO, said that when banks move, they are likely to move at a tremendous pace. He said the bank has a history of rapidly raising rates from emergency levels, suggesting four rate hikes by the end of 2022.

“When the Bank of Canada believes it needs to raise interest rates, they don’t tend to wait, they tend to move relatively fast,” Porter said.

The bank said the economy seems to be showing “significant momentum” towards the end of the year after growing at an annual rate of 5.4% in the third quarter of this year. This is well below what the Bank of Canada predicted in October.

According to a statement from the Bank of Canada, quarterly growth brought total economic activity within about 1.5% of the last quarter of 2019, before COVID-19 rushed to the Canadian coast.

Similarly, the labor market in November was higher than expected, with unemployment rising 0.3 percentage points above pre-pandemic levels in February 2020, maintaining record high unemployment. ..

Still, banks can be scared of consumers spending on services by the catastrophic flood headwinds in British Columbia and the uncertainty of Omicron variants throwing another wrench into the roaring supply chain. I point out that.

Sri Tanabara Singham, senior economist at TD, said banks could move faster at interest rates if Omicron turned out to have less health concerns than initially. The labor market is fierce and strong. “

Rising interest rates will affect interest rates on floating rate mortgages, adding $ 121.5 billion in mortgage debt, including $ 38 billion from July to September, to household finances during 2021. It may tighten.

Tashia Batstone, President of FP Canada, Financial Planning, said: Association.

“That is, you have to work hard to keep your budget, and you have to monitor the debt you’re taking. In particular, you need to be aware that you may not be able to secure your mortgage flexibility.”

NS Jordan Press

Canadian press