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December 08, 2021BANK OF CANADA MONETARY POLICY The Bank of Canada announced today that it will hold its target for the overnight rate at the effective lower bound of 0.25%, with the Bank rate at 0.50% and the deposit rate at 0.25%. The Bank also noted that it is maintaining its forward guidance and will continue its reinvestment phase, keeping the overall holdings of Government of Canada bonds roughly constant.
Following a strong third quarter, economic growth has accelerated in the United States and moderated in some other regions. Inflation has increased reflecting higher demand for goods despite ongoing supply disruptions. However, the new COVID variant has caused a tightening of travel restrictions in many countries and a decline in oil prices.
In Canada, Gross Domestic Product (GDP) increased by about 5.5% in the third quarter of 2021. This level of activity is 1.5% below its level in the last quarter of 2019. The main driver behind the third quarter growth was a rebound in services consumption as restrictions were further eased and vaccination coverage increased. Supply bottlenecks continue to limit further growth in non-commodity exports and business investment.
CPI inflation in Canada increased 4.7% in October 2021. The Bank noted that the impacts of global supply constraints on prices will take some time to work their way through. Core inflation are little changed since September. The Bank expects CPI inflation to remain elevated in the first half of 2022 and decline to 2.0% in the second half of the year.
The Bank notes that considerable monetary policy support is needed to keep Canada’s economic recovery on its track. The Bank reconfirmed its commitment to hold the policy rate at the effective lower bound until economic slack is absorbed, and the 2 percent inflation target is sustainably achieved. The October MPR expects these conditions to continue until sometime in the middle quarters of 2022. The QE program currently in place will continue until the recovery is well underway and will be calibrated to provide the monetary policy stimulus needed to support the recovery and achieve the inflation objective.
The next scheduled date for announcing the overnight rate target is January 26, 2022. The next full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published at the same time.
Bank of Canada: Rate Announcement
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