The rate is 0.25 per cent.
A resident pulls a child in a sled outside of the Bank of Canada building.
The photo was taken by David Kawai.
The Bank of Canada's interest rate decision was made on January 26, 2022.
The overnight rate was held at 0.25 per cent by the Bank of Canada and the deposit rate was held at 0.25 per cent. The Bank has removed its forward guidance on its policy interest rate. The Bank's holdings of Government of Canada bonds are roughly constant.
The global recovery from COVID-19 is not flawless. The US economy is growing robustly while other regions are growing less so due to the weakness in China's property sector. Inflation in most regions is being pushed up by strong global demand for goods and supply shortages. Oil prices rebounded to above pre-pandemic levels after a decline at the Omicron variant of COVID-19. Financial conditions remain broadly accommodative, but have tightened due to expectations that monetary policy will be normalized sooner than anticipated. The Bank projects global GDP to grow from 6.75 per cent in 2021, to 3.5 per cent in 2022, and then to 3.5 per cent in 2023.
The second half of the year in Canada looks to have been better than expected. A broad set of measures show that slack in the economy is being absorbed. The labour market has tightened due to strong employment growth. Wage gains are picking up and there are elevated job vacancies. The housing market is putting upward pressure on house prices.
In the first quarter, the Omicron variant is weighing on activity. The economic impact of this wave will be dependent on how quickly it passes, but it is expected to be less severe than previous waves. Economic growth is expected to bounce back and remain robust over the projection horizon, supported by consumer spending on services and strength in exports and business investment. Canada's economy is expected to grow by 4 per cent in 2022, and 3.5 per cent in 2023, after GDP growth of 4.5 per cent in 2021, according to the Bank.
Core measures of inflation have risen since October, but the inflation rate is still well above the target range. Inflation is expected to be close to 5 per cent in the first half of the year due to persistent supply constraints and higher food and energy prices. Inflation is expected to fall quickly to 3 per cent by the end of this year and then gradually ease towards the target over the projection period. Inflation expectations have moved up, but they are still anchored on the 2 per cent target. The Bank will use monetary policy tools to make sure that inflation expectations do not become embedded in ongoing inflation.
The Governing Council judges that slack in the economy is absorbed, thus satisfying the condition outlined in the Bank's forward guidance on its policy interest rate. The Governing Council decided to end its extraordinary commitment to hold the policy rate at the effective lower bound. The Bank's commitment to achieving the 2 per cent inflation target is expected to lead to an increase in interest rates.
The Bank will keep its holdings of Government of Canada bonds on its balance sheet until it raises the policy interest rate. The Governing Council will consider exiting the reinvestment phase and reducing the size of its balance sheet by allowing roll-off of maturing Government of Canada bonds.
