The central bank's current stance shows no intensified concerns toward inflation, BMO says
With the Bank of Canada keeping its overnight rate at 0.25% once again, the second quarter of 2022 now appears to be the earliest possible time for a rate hike, according to BMO Economics.
“Essentially, this stands as a policy placeholder, as the bank awaits more evidence on the impact of the new variant (on growth and supply chains), as well as the BC floods,” said Douglas Porter, chief economist and managing director of economics at BMO. “On balance, the key takeaway is that policymakers did not send a warning shot about a possible rate hike as early as the January meeting, continuing to guide toward the ‘middle quarters of 2022’ for when the output gap is closed and the likely start of rate hikes.”
Porter said that the central bank’s current stance appears “broadly neutral,” exhibiting “no intensified concerns about the inflation outlook and some mixed messages on the growth backdrop.”
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However, while Canadian growth will benefit from strong Q4 momentum, coronavirus disruptions and the floods are likely to have a considerable impact on the financial system, Porter said.
“Given the ongoing heat in inflation, a near-complete recovery in employment markets, torrid housing, and a well-behaved currency, April does now indeed look like the lift-off date for rate hikes,” Porter said. “Assuming that the new variant does not significantly alter the outlook, we look for 25 bp hikes in back-to-back meetings in the spring, and then probably an additional two moves through the second half of 2022.”
