05 Mar
On the 2nd of March 2022, the Bank of Canada increased interest rates by issuing a press release and stating they have increased their overnight rate to 0.5% with Bank Rate at 0.75% and the deposit rate of 0.5% as well. The Bank is making significant efforts to ensure that the holders of Government of Canada bonds keep them on their balance sheet. It is also continuing its reinvestment phase as well.
It was also highlighted that because of the geopolitical issue of Russia and Ukraine, the prices for oil and gas have risen sharply. This would be added to the increasing inflation around the world and will also have major negative impacts on the supply chain as well. Because of supply disruptions, economic growth and global growth will also be affected as well. The volatility of financial markets has also increased as well. There have been large fluctuations in the future markets and further strategies need to be developed in order to improve the economic conditions of the country.
Furthermore, it has been noted that various economies are already in the recovery phase and their recovery is being completed at a rapid pace. However, the concern for new variants is still circulation amongst the general public. Although Canada is perceiving some supply chain bottleneck issues, there have been indications that some of the constraints have eased.
The overall economic growth of Canada is strong in the fourth quarter of the last year which was at 6.7%. This percentage is stronger that what the Banks have projected, and it confirms that economic slack has been absorbed. The government of Canada has overcome the issues that were perceived during the pandemic, and its imports and exports have fully resumed their operation and remain consistent with solid global demands.
In January, the labour market of Canada suffered a setback because of the Omicron variant, which resulted in a temporary layoff for workers in some service sectors. Nevertheless, the country is now rebounding from the setback in an effective and efficient manner. Household spending is increasing and will further be strengthened when public health restrictions are lifted. In conclusion, the first-quarter growth is strong compared to the predictions that were made.
As expected, the Consumer Price Index inflation is at 5.1% which was predicted in January and is still above the Bank’s target range. Increases in prices are now becoming inescapable and the core measures of inflation have all increased. Because of the country’s poor harvests and the increase in transportation costs, the overall food prices have also increased as well. Further pressure is being added because of the invasion of Ukraine leading to increase in prices for both energy and food related commodities. As a matter of fact, estimations of inflation will be much higher in the near term than what was expected.
It is expected that increased interest rates will continue to surge because of the expanding economy and the pressure of inflation builds up on the country. The result of the quantitative tightening will be able to complement the increase in policy interest rates and the Bank is strategizing themselves to certify that the 2% inflation target is achieved.
