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Highlights:
- Bank of Canada's key interest rate will remain at 0.25 per cent, a record low that has remained unchanged since the early days of the COVID-19 pandemic.
- The coronavirus pandemic was bad for the economy, and it continues to affect economic activities across sectors.
- The Bank of Canada said that the GDP growth for Canada was stronger than expected in the second half of 2021.
In a surprise move, the Bank of Canada kept interest rates unchanged on Wednesday, January 26, amid speculations that the central bank would increase the interest rates.
Bank of Canada's key interest rate will remain at 0.25 per cent, a record low that has remained unchanged since the early days of the COVID-19 pandemic.
Apart from keeping the interest rates unchanged, the central bank also announced that its priority is addressing the issue of rising inflation as the economy has returned to the total capacity.
Interest rates remain unchanged. What's next?
According to the official statement, the central bank will continue its reinvestment phase. It is expected that the consumer price index (CPI) inflation will remain at five per cent in the first half of this year.
The reason behind this could be supply constraints and higher energy prices. As the supply crunch is expected to diminish, inflation will likely decline to three per cent by the end of 2022, said the central bank.
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The central bank said that strong demand for goods combined with supply issues negatively impacts production and transportation, and thus inflation rises.
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The coronavirus pandemic was bad for the economy, and it continues to affect economic activities across sectors. Bank of Canada said that its Governing Council judges have observed that overall economic slack is absorbed.
The Governing Council has decided to that it will not the key interest rate at 0.25 per cent for long. The central bank will most likely increase interest rates to achieve the two per cent inflation target.
Bottom line
The Bank of Canada said that the gross domestic product (GDP) growth for Canada was beyond expectations in the second half of 2021. In 2022, the economy entered the year with considerable momentum.
Although the omicron variant is affecting economic activities, its impact will be assessed on how quickly this wave passes. This wave is expected to be less severe than the previous one, and economic growth is expected to bounce back.
In 2021, the GDP growth was 4.5 per cent, and the Bank of Canada expects the economy to grow by four per cent this year and 3.5 per cent in 2023.
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