With inflationary soaring, Bank of Canada have the ability to change it interest rate guidance in the new year so that it has the option of increasing borrowing costs earlier than planned despite the threat from Omicron variant analysts said.
Last week, leaving its key overnight rate at 0.25% – a level it has been since March 2020 – the bank reiterated its guidance, saying it would not raise rates until the situation economic situation declines “in the mid-quarters of 2022”.
But it has turned hawkish since then, warning that inflation would run hotter than expected, and Governor Tiff Macklem said the slowdown in the Canadian economy caused by the COVID-19 pandemic had eased significantly. tell.
“Even if the Bank of Canada wants to be a little cautious on the possibility of a winter shutdown…, if they think inflation expectations are starting to get unchecked, that would be a major concern. theirs,” said Andrew Kelvin, chief Canadian strategist at TD Securities.
“Definitely in January, they’ll want their March pick,” he added.
The bank will have its next meeting to decide on the rate on January 26, when the bank will also update its forecast. Money markets expect about four rate hikes next year, with the first in March. They see about a 40% chance of a move in January.
“January will be a statement that every meeting is now an in-person meeting,” said Adam Button, head of currency analysis at ForexLive.
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Analysts said that while the spread of Omicron could undermine growth, it could also ease economic stagnation more quickly by returning to the pace at which the economy could development, analysts said.
“I don’t think (the bank) is going to change course on Omicron because they’re going to see it as inflationary” as it could disrupt the supply chain further, Button said.
Inflation in November reached nearly 5% and is starting to decrease. On Wednesday, Macklem said the bank was moving closer to no longer providing term guidance that guarantees low interest rates during the pandemic, which some analysts saw as a signal it would removed in January.
A change in guidance in January could mean the Bank of Canada will start raising interest rates ahead of the US Federal Reserve, which on Wednesday said it would accelerate the removal of its bond-buying stimulus. itself before possibly three rate hikes in 2022. Money markets expect a rate hike for the Fed in June.
The Bank of England on Thursday became the first major central bank in the world to raise borrowing costs since the coronavirus pandemic hit the global economy.
A flurry of Canadian economic data, including employment and inflation in December, will set the tone for the January meeting. While most economists were skeptical of gains as early as January, it’s not impossible, said Doug Porter, chief economist at BMO Capital Markets.
“Never say never. I certainly can’t rule it out,” Porter said. “We’re going to have a lot of data by then, adding that all the metrics will have to be directional.” “one direction” and creates a sense of urgency for the bank to move so quickly.
https://globalnews.ca/news/8458591/bank-of-canada-interest-rate-omicron/ Bank of Canada likely to change rate guidance amid threat from Omicron: analysts – National