The Bank of Canada (BoC) left its benchmark interest rates unchanged at
0.25 percent on Wednesday, as most economists expected. The Bank also decided
to remove its exceptional forward guidance on interest rate, as overall
economic slack is now absorbed.
In its policy statement, the Canadian central bank noted:
Global recovery from the coronavirus pandemic is strong but uneven, with
U.S. economy growing robustly and some other regions expanding at more moderate
paces;
Strong global demand for goods combined with supply bottlenecks are
pushing up inflation in most regions;
Global GDP growth is projected to moderate from 6.75% in 2021 to about
3.5% in 2022 and 2023;
Canada’s GDP growth in 2H 2021 looks to have been even stronger than anticipated;
Omicron COVID variant is weighing on activity in 1Q;
Canada’s economy is seen to grow by 4% in 2022 and about 3.5 % in 2023,
following a 4.5% expansion in 2021;
CPI inflation remains well above BoC’s target range; it is expected to
remain close to 5% in 1H 2022 and to decline reasonably quickly to about 3% by
the end of the year, and then gradually ease towards the 2% target over projection
period;
BoC will use its monetary policy tools to ensure that higher near-term
inflation expectations do not become embedded in ongoing inflation;
Governing Council decided to end its extraordinary commitment to hold
its policy rate at the effective lower bound
Looking ahead, Governing Council expects interest rates will need to
increase, with timing and pace of those increases guided by BoC’s commitment to
achieving the 2% inflation target