The central bank's last scheduled announcement of the year gave an indication of 2022's likely rates trajectory
The Bank of Canada has stayed the course on interest rates in its final scheduled announcement of the year, indicating no change to its projection that its policy rate will rise in the middle quarters of 2022.
The central bank said that while it was “closely watching” the inflation issue that has dominated headlines in recent weeks, it would hold its benchmark rate steady at 0.25% with rate hikes likely to begin at some point around the middle of next year.
In its announcement, the Bank said that growth in Canada’s economy had been “as expected” in the third quarter, around 5.5%, with a rebound in consumption and higher vaccination rates contributing to that spurt.
It said CPI (consumer price index) inflation was likely to remain “elevated” through the first six months of next year before dropping back towards the Bank’s target of around 2% in the second half.
While it said the economy had “considerable momentum” into the fourth quarter, the Bank also noted the new Omicron variant of COVID-19 as a cause of some uncertainty having led to tightened travel restrictions in several countries and a decline in oil prices.
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The statement said that while housing activity had been moderating, it appeared to be regaining strength – particularly in resales. Still, it emphasized that recent flooding in British Columbia and the emergence of the Omicron variant could have a negative impact on growth by “compounding supply chain disruptions and reducing demand for some services.”
The Bank’s governor Tiff Macklem laid the groundwork last month for future movement on the benchmark interest rate by indicating in a Financial Times op-ed that rate hikes were “getting closer”.
Despite inflation having recently hit its highest point in two decades, Macklem wrote that the Bank’s approach to the issue was a flexible one that gave it the ability to manoeuvre if required.
“What our resolve does mean is that if we end up being wrong about the persistence of inflationary pressures and how much slack remains in the economy, we will adjust,” he said. “Our framework enables us to do just that.”
The Bank’s next announcement on its policy rate is scheduled to take place on January 26.
