Bank of Canada Interest Rate Announcement - January 26, 2022
While
the majority of expert opinion had swung toward the Bank of Canada
raising its overnight rate this morning, the Bank instead maintained its
overnight rate at 0.25 per cent. However, in the statement accompanying
the decision the Bank noted that slack in the economy has been absorbed
and it is ending what it calls its "exceptional forward guidance" on
the policy interest rate. This is a clear signal that the Bank will
begin raising its overnight policy rate, likely at its next meeting in
March. The Bank also noted that the Canadian economy grew much faster
than expected over the second half of 2021 and has entered 2022 with
considerable momentum. While the Omicron variant is weighing on activity
in the first quarter, its impact is expected to be modest. Importantly,
the Bank expects inflation to remain close to 5 per cent (annualized)
over the first half of 2022 before declining to 3 per cent by the end of
the year.
Inflation continues to run ahead of the Bank of Canada's 2 per cent
target and inflation expectation are noticeably rising. That has
prompted the Bank to bring its rate tightening forward by several
months. We expect the Bank will begin tightening in March, ultimately
bringing its overnight rate to 1.75 per cent by early 2023. Canadian
fixed-rate mortgages have already been rising in anticipation of a
higher Bank of Canada rate and are now closing in on their pre-pandemic
level of 3 per cent.
*Courtesy of BCREA
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