The
Bank of Canada (BoC) left its benchmark interest rates unchanged at 0.25
percent on Wednesday, as widely expected. The Bank also decided to maintain its
forward rate guidance and keep its overall holdings of government bonds roughly
constant.
In
its policy statement, the Canadian central bank noted:
- Global
economy continues to recover from the effects of the COVID-19 pandemic, while inflation
has increased further in many countries, reflecting strong demand for goods amid
ongoing supply disruptions;
- Omicron
has injected renewed uncertainty;
- Canada’s
economy expanded by about 5.5 percent in
Q3, as expected, led by rebound in consumption, while persistent supply
bottlenecks continued to inhibit growth in other components of GDP;
- Recent
economic indicators suggest the economy had considerable momentum into Q4;
- But
devastating floods in British Columbia and uncertainties arising from Omicron
could weigh on growth;
- CPI
inflation is elevated, and BoC
continues to expect CPI inflation to remain elevated in H1 2022 and ease back
towards 2 percent in H2;
- BoC
is closely watching inflation expectations and labour costs to ensure that
forces pushing up prices do not become embedded in ongoing inflation;
- Governing
Council judges that Canada’s economy continues to require considerable monetary
policy support;
- BoC
remains committed to holding policy interest rate at effective lower bound
until economic slack is absorbed so that 2 percent inflation target is
sustainably achieved. In Bank’s October projection, this happens sometime in middle
quarters of 2022;
- We
will provide the appropriate degree of monetary policy stimulus to support the
recovery and achieve the inflation target.