The Bank of Canada (BoC) today has decided to raise its key overnight lending rate for the first time since 2018. They have announced a 0.25% increase to bring their rate to 0.50%. They are responding to a persistent inflationary environment that began last year and has not abated. The prime rate of interest at major FI’s will likely respond with the same move taking prime to 2.70%.
Consumer spending, after being suppressed through the early days of the pandemic, has surged. As per the BoC: “Economies are emerging from the impact of the Omicron variant of COVID-19 more quickly than expected”. 2021 US government policy changes in the area of energy have also placed a significant chokehold on North American oil & gas production, pushing up the need to import energy and pushing prices up. The housing market continues to be very strong with many sellers receiving above-listed prices for their homes.
Most recently; the unprovoked Russian invasion of Ukraine has added instability to the world economic outlook. This will affect prices, as we have very recently seen in energy, and other staple goods. Other than this significant new event, the BoC has stated: “Global economic data has come in broadly in line with projections in the Bank’s January Monetary Policy Report (MPR).”
We continue on track as the BoC has generally predicted. They continue to believe that their key rate will continue to rise through 2022. Economists and experts appear to expect 4 to 6 quarter-point increases through 2022 into 2023. We know that the BoC wants to ease this tightening in place and only continue it if needed as they watch and study the economy.