The central bank continues to pursue its 2% inflation target
The Bank of Canada’s interest rate hikes will likely take cues from the readiness of the nation’s businesses to re-engage in the market amid the economy’s steady recovery from the COVID-19 pandemic, according to the central bank.
“Productivity growth is vital to non-inflationary growth and rising standards of living. At a time when inflation is already well above our target, this is more vital than ever,” Bank of Canada Governor Tiff Macklem said in a recent statement to the Canadian Chamber of Commerce.
Macklem predicted that without the BoC’s intervention, inflation will go down to approximately 3% by the end of 2022 – building the case for the central bank to hike rates so that inflation scales back to the 2% target rate.
“As businesses set prices and wages, firms and workers alike can be assured that the Bank of Canada will use its monetary tools to control inflation,” Macklem said.
Read more: Rate increases – what could they mean for the housing market?
The BoC is also expecting this recovery to be considerably stronger than the pace south of the border.
“Indeed, we expect that business investment will grow faster in Canada than in the United States,” Macklem said. “It’s imperative that businesses in Canada follow through on these plans or risk losing out to US competitors.”
Markets are anticipating a hike at the BoC’s next policy decision on March 2, the first of as many as six upward adjustments over the next year.
