Today, in its third scheduled policy decision of 2022, the Bank of Canada took direct aim at inflation by increasing its overnight benchmark rate to 1% from 0.50% in March. As a result, the Bank Rate rises to 1.25% from 0.75% and borrowing costs for Canadians will rise again.
This decision was not a surprise. This is strong medicine and marks the first time in 22 years that the overnight rate moved up by 50 basis points in one fell swoop.
The BoC also announced it is ending what it calls its reinvestment phase, during which it added Government of Canada bonds to its balance sheet. Effective April 25th, it will begin quantitative tightening and maturing Government of Canada bonds will no longer be replaced.
Canadian economy and the housing market
- Economic growth is strong and the economy is moving into excess demand
- Labour markets are tight, and wage growth is back to its pre-pandemic pace “and rising”
- Businesses increasingly report they are having difficulty meeting demand, and are able to pass on higher input costs by increasing prices
- While the COVID-19 virus continues to mutate and circulate, high rates of vaccination have reduced its health and economic impacts
- Growth looks to have been stronger in the first quarter than projected in January and is likely to pick up in the second quarter
- Consumer spending is strengthening with the lifting of pandemic containment measures
- Exports and business investment “will continue to recover, supported by strong foreign demand and high commodity prices”
- Housing market activity, which has been exceptionally high, is expected to “moderate”
BoC’s next scheduled policy announcement is June 1, 2022. If you have any questions on the announcement and how it affects your finances, please give me a call or reply to this message.