Bank of Canada Interest Rate Announcement - December, 2021

The Bank of Canada maintained its overnight rate at 0.25 per cent this morning, a level it considers its effective lower bound. The Bank reiterated what it calls "extraordinary forward guidance" in committing to leaving the overnight rate at 0.25 per cent until slack in the economy is absorbed and inflation sustainably returns to its 2 per cent target. The  Bank projects that will occur in the middle quarters of 2022. In the statement accompanying the decision, the Bank noted that recent economic indicators signal considerable momentum to end 2021, but the Omicron COVID-19 variant has injected renewed uncertainty into the global economy and flooding in British Columbia could weigh on growth in the short-term by compounding supply chain issues and reducing demand for some services. The Bank still expects inflation to ease back to its 2 per cent target by the second half of next year.

We expect the Bank will raise its overnight rate two times next year, followed by quarterly increases in 2023, bringing the overnight rate back to its pre-pandemic level by the end of 2023. It is possible that the Bank may act earlier or more aggressively next year, however the realities and uncertainties of the pandemic are still very much a presence in the global economy, particularly with the emergence of new COVID-19 variant. Consequently, it would not be surprising if the Bank of Canada had to delay its current expected schedule of rate increases.


For more information, please contact: Gino Pezzani.


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