The Bank of Canada is keeping the lending rate at 0.25 per cent

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#economy #cdnecon #finance

The Bank of Canada surprised markets Wednesday by keeping its key lending rate at 0.25 per cent, while putting Canadians on notice that interest rates will eventually rise.

The central bank said Wednesday the rebound since then and especially over the last few months has been stronger than it anticipated.

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 move is in keeping with the signal from the Bank of Canada late last year that it would begin to hike interest rates toward the middle of 2022. However, some economists predicted officials would move earlier in an effort to cut off surging inflation on housing and other consumer goods.

In Canada, GDP growth in the second half of 2021 now looks to have been even stronger than expected. The economy entered 2022 with considerable momentum, and a broad set of measures are now indicating that economic slack is absorbed. With strong employment growth, the labour market has tightened significantly. Job vacancies are elevated, hiring intentions are strong, and wage gains are picking up. Elevated housing market activity continues to put upward pressure on house prices.

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.

Statistics Canada reported inflation hit a 30-year high of 4.8 per cent in December, well above the bank’s target range of one-to-three per cent.

 

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