The Bank of Canada held its key lending rate unchanged at 0.25% following a policy meeting in Ottawa on Wednesday but noted that inflation likely won’t ease back towards its central target range of between 1% and 3% until at least late next year.
Rate hikes, the bank said, will likely occur in the ‘middle quarters’ of next year, around three months earlier than indicated in its July forecast. Quantitative easing, the Bank said, will end on November 1.
In a statement on Wednesday, policymakers led by Governor Tiff Macklem announced they would stop growing holdings of Canadian government bonds, ending a quantitative easing program that has poured hundreds of billions into the financial system since the start of the Covid-19 pandemic.
They also signaled they could be ready to hike borrowing costs as early as April, as supply constraints limit the economy’s ability to grow without fueling inflation.
The Canadian dollar soared and bonds were hit hard. The loonie jumped to C$1.2321 per U.S. dollar as of 10:39 a.m., up more than 0.5%. Two-year benchmark yields rose about 20 basis points to 1.065%