Bank of Canada Maintains Policy Rate But Expects Inflation to Persist in 2022
What comes as likely not a surprise to many, the Bank of Canada once again kept interest rates intact on Wednesday, despite warning of persistent inflation amid a strengthening labour market.
During its Wednesday policy decision, the Bank of Canada maintained the current rate of borrowing costs unchanged at 0.25%, adding that further support for the country’s economy is still needed. However, policy makers did note that recent improvements in the labour market have been strong, with the employment rate finally rebounding to pre-pandemic levels.
According to the statement, the Bank of Canada said it will keep its unprecedented forward guidance and not adjust the overnight policy rate until a full economic recovery has been achieved, which isn’t expected until the “middle quarters of 2022.” The bank also said that it will continue to maintain its holdings of government bonds relatively unchanged for the time being.
However, policy officials did adjust the central bank’s language in reference to inflation. The Bank of Canada acknowledged that current global supply chain bottlenecks will likely persist for longer than expected, while the omicron variant adds to uncertainty surrounding the global economic recovery. As such, the central bank subtly warned that price pressures will remain elevated throughout the first half of 2022, before inflation recedes to the 2% target rate.
“The bank is closely watching inflation expectations and labor costs to ensure that the forces pushing up prices do not become embedded in ongoing inflation,” policy makers assured.
Information for this briefing was found via the Bank of Canada. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
