As had been widely expected, the Bank of Canada held its benchmark overnight interest rate steady at 0.25% but raised concerns about persistently high inflation that is impacting consumer prices.
In a statement-only decision, the central bank reiterated its view that the economy continues to require considerable monetary policy support. However, the bank removed a reference to inflationary pressures being "temporary" and noted that recent job gains have been broad-based, with Canada’s employment rate returning to pre-pandemic levels.
The latest comments from the Bank of Canada reinforce the view of investors and economists that the central bank is likely to raise interest rates throughout the next year.
The Bank of Canada has been at the forefront among Group of Seven central banks in slowing its stimulus efforts. In October, it ended its bond-buying stimulus program and accelerated the potential timing of future rate increases amid worries that supply disruptions are driving up inflation.
Currently, markets are pricing in interest rate hikes in Canada next year at a faster pace than the U.S. Federal Reserve, which has yet to end its quantitative easing program.
Before Wednesday, investors were pricing in five Canadian interest rate increases, with a more than 50% chance of the first hike coming next month (January). At least one interest rate hike by the Bank of Canada’s March 2, 2022 decision is fully priced in.