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BoC Leaves Rates Unchanged at 0.25% - Foresees Inflation at 3% for 2022 (Jan 26, 2022)
the Bank expects Canada’s economy to grow by 4% in 2022 and about 3½ % in 2023. Admits the economic slack has been absorbed however continues its reinvestment phase, maintaining its overall holdings of Gov bonds roughly constant.
“In Canada, GDP growth in the second half of 2021 now looks to have been even stronger than expected. The economy entered 2022 with considerable momentum, and a broad set of measures are now indicating that economic slack is absorbed” – Bank of Canada
The Bank foresees diminishing supply shortages resulting in inflation dropping to around 3% from 48% currently, by year end.
The Bank of Canada has emerged as one of the most hawkish of the major central banks, at least as far as market expectations are concerned - see below.
Markets Predictions: Implied probabilities derived form rate markets suggested 5 hikes for 2022 just prior to the decision and around 80% probability of a 25-bps hike after today’s meeting.
Analyst Predictions: seven out of thirty-one economists polled by Reuters favored a hike which highlights the divergence in thinking between ‘professionals’ and the general market.
