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The Bank of Canada To Keep Its Key Interest Rate Target On Hold

The Bank of Canada To Keep Its Key Interest Rate Target On Hold

Date Posted: January 26, 2022

In the latest release, the Bank of Canada has opted to maintain its benchmark rate at 0.25%, the same level it has been since the start of the pandemic in March 2020.

It was suspected to raise its key policy rate from 0.25% marking the first of multiple hikes to happen over 2022 according to some economists.

“The Omicron variant is weighing on activity in the first quarter. While its economic impact will depend on how quickly this wave passes, it is expected to be less severe than previous waves. Economic growth is then expected to bounce back and remain robust over the projection horizon, led by consumer spending on services, and supported by strength in exports and business investment. After GDP growth of 4½ % in 2021, the Bank expects Canada’s economy to grow by 4% in 2022 and about 3½ % in 2023.”

Canada’s own economic growth has resumed with strong employment gains in sectors for those most affected by lockdowns. However, it is taking more time for workers and employers to find the right job and applicants thus contributing to labour shortages in certain sectors.

“While COVID-19 continues to affect economic activity unevenly across sectors, the Governing Council judges that overall slack in the economy is absorbed, thus satisfying the condition outlined in the Bank’s forward guidance on its policy interest rate. The Governing Council therefore decided to end its extraordinary commitment to hold its policy rate at the effective lower bound. Looking ahead, the Governing Council expects interest rates will need to increase, with the timing and pace of those increases guided by the Bank’s commitment to achieving the 2% inflation target.”

The next Bank of Canada announcement will be on March 2nd, 2022. 

To read the full press release from the Bank of Canada, click here.

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