Bank of Canada keeps key interest rate target on hold. Canada’s central bank leaves interest rate unchanged. The Bank of Canada today held its target for the overnight rate at the effective lower bound of 0.25 per cent, with the Bank Rate at 0.5 per cent and the deposit rate at 0.25 per cent.
With overall economic slack now absorbed, the Bank has removed its exceptional forward guidance on its policy interest rate. The Bank is continuing its reinvestment phase, keeping its overall holdings of Government of Canada bonds roughly constant.
In a statement, the bank’s senior decision-makers said the economy is running at capacity, including a labour market that is by most standards back at pre-pandemic levels.
The rebound is why it now says it will no longer promise to keep its key policy rate at 0.25 per cent, adding that rates will need to rise to bring inflation back to the central bank’s two per cent target.
The Bank of Canada wrote in a monetary policy report released alongside the interest rate decision Wednesday that it expects inflation will remain around five per cent for the first half of 2022, citing supply chain constraints and rising food prices.
“The Bank of Canada judged that a fresh pandemic wave wasn’t the opportune time to launch into a rate hike cycle, or just wanted to formally end its forward guidance before actually pulling the trigger, but left no doubts that rate hikes are coming,” Shenfeld wrote in a note to clients.
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