The Bank of Canada made its eighth and final (scheduled) interest rate decision of the year and for the eighth time, left its overnight benchmark unchanged at 0.25%. As a result, the Bank Rate stays at 0.5%.

These low rates have been a feature of monetary policy since March 2020 with the initial pandemic lockdown of the economy. 

Going into today’s announcement, the question on the minds of economists and borrowers alike is when will the Bank change its policy?  We looked for clues in the Bank’s statement and summarize what was said below:

Inflation

• CPI inflation is elevated and the impact of global supply constraints is “feeding through” to prices on a broader range of goods
• The effects of these constraints will likely take some time to work their way through, given existing supply backlogs
• Gasoline prices, a major factor pushing up CPI inflation, have recently declined
• Core measures of inflation are little changed since September
• The Bank is closely watching inflation expectations and labour costs to “ensure that the forces pushing up prices” do not become embedded

Canadian housing & economic performance

• Housing activity had been moderating, but appears to be regaining strength, notably in resales
• Canada’s economy grew by about 5.5% in the third quarter, in line with expectations and bringing the level of GDP to about “1.5% below the last quarter of 2019, before the pandemic began”
• Third-quarter 2021 GDP growth was led by a rebound in consumption, particularly services, as restrictions were further eased and higher vaccination rates improved confidence
• Persistent supply bottlenecks continued to inhibit growth in other components of GDP, including non-commodity exports and business investment
• Recent indicators suggest the economy had considerable momentum heading into Q4
• Broad-based job gains in recent months have brought the employment rate “essentially back” to its pre-pandemic level
• Job vacancies remain elevated and wage growth has picked up
• Devastating floods in British Columbia and uncertainties arising from the Omicron (COVID-19) variant “could weigh on growth” by compounding supply chain disruptions and reducing demand for some services

Global economy

• The global economy continues to recover from the effects of COVID-19
• Economic growth in the United States has accelerated, led by consumption, while growth in some other regions is moderating after a strong third quarter
• Inflation has increased further in many countries, reflecting strong demand for goods amid ongoing supply disruptions
• Omicron has prompted a tightening of travel restrictions in many countries and a decline in oil prices, and “injected renewed uncertainty”
• Accommodative financial conditions are still supporting economic activity

Outlook: Stimulus continues

The Bank continues to expect CPI inflation to remain elevated in the first half of 2022 and ease back towards 2% in the second half of next year.

The Bank’s Governing Council noted that in view of ongoing excess capacity, the economy continues to require “considerable monetary policy support.” Accordingly, it remains committed to holding its policy interest rate at the effective lower bound until economic slack is absorbed so that the Bank’s 2% inflation target is sustainably achieved.

In the Bank’s October projection, the inflation target would be sustainably achieved “sometime” in the middle quarters of 2022. It did not provide further updates to this timing. Consequently, the market is left to speculate about when rates will rise.

The Bank did note, however, that it will continue to provide the “appropriate degree of monetary policy stimulus” to support the recovery and achieve its inflation target.

Time to borrow

With the benchmark rate unchanged – for now –  but signs of a coming shift in monetary policy, it pays to think proactively about your property financing plans for 2022. First National is ready to help with prompt service and always competitive rates.

January 26, 2022 is the Bank of Canada’s next scheduled meeting on monetary policy.