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Highlights
- The Bank of Canada (BoC) is scheduled to announce the latest benchmark rates on January 26.
- Some market analysts believe that the top lender will announce raised benchmark interest rates then.
- The Canadian central bank had decided to lower its interest rates to 0.25 per cent following the onset of the COVID-19 pandemic in 2020. The BoC had also noted that it is not likely to increase these rates before 2023.
The Bank of Canada (BoC) is set to address the country this month-end, on January 26, and some market analysts believe that the top lender will announce raised benchmark interest rates then.
The Canadian central bank had decided to lower its interest rates to 0.25 per cent following the onset of the COVID-19 pandemic in 2020. The BoC had also noted that it is not likely to increase these rates before 2023.
So, why is there a speculation about the BoC preponing the interest rate hike? Let us find out.
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What we know from the BoC so far?
While reinstating the overnight rate of 0.25 per cent in December last year, the Bank of Canada had said that amid a recovering global economy, Canada’s gross domestic product (GDP) expanded by about 5.5 per cent in Q3 2021.
The GDP growth in the third quarter, the central bank said, was fueled by a recovery in consumption amid relaxed COVID-19 restrictions and higher vaccination.
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While the BoC noted that the economic indicators hint at continued economic growth for Q4 2021, it did point at the hindrance caused by the supply crunch, the British Columbia floods and the emergence of the omicron variant.
The BoC also said that it expects the Consumer Price Index (CPI) inflation to stay raised in the first half of 2022 and eventually relax towards two per cent in the later half.
The top bank, however, also pointed at the broad-based job gains in the recent months, the rising employment rate and elevated job vacancies, along with the housing activity regaining some strength, notably in resales.
Will Bank of Canada hike interest rates sooner than expected?
Will the BoC increase interest rates?
In October 2021, BoC Governor Tiff Macklem had hinted at not tightening the policy until the economy had completely recovered, which he projected would happen in the “middle quarters” of 2020.
In December too, the BoC asserted that it is plans on keeping the interest rates low until “economic slack is absorbed”.
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However, some latest data suggest that Canada’s economy has been outperforming. For instance, Canada recorded job growth for the seventh month in a row in December 2021.
Some economists believe that the BoC may be showing concerns about Canada’s output gap, i.e., the difference between an economy’s actual and potential output, which could lead it to increase the interest rates sooner than expected.
On the contrary, a section of market analysts believe that the spread of the omicron variant, which has led to some renewed COVID-19 restrictions, is likely to see the BoC delay interest rate hike till the renewed restrictions ease.
Bottomline
While both parties have reasons backing their predictions, Canadians will not have wait that long to see which way the Bank of Canada leans.
As mentioned above, the central bank is scheduled to announce the latest benchmark rates on January 26, along with which it will release its full outlook for the country’s economy and inflation.
