By Ketki Saxena
Investing.com - The Bank of Canada did not raise interest rates today, and will continue to hold its key policy rate at the lowest possible level of 0.25%.
The BoC has maintained rates at this level since the onset of the pandemic, in order to provide market liquidity and stimulate economic activity during the COVID-19 crisis. On the flipside, the vast and rapid increase in monetary supply has led to skyrocketing inflation driven by excessive liquidity and demand that further pressures already strained supply chains. Canadian CPI is officially at a 2 decade high of 4.8%, which is a key incentive for the Bank to raise rates sooner rather than later.
At its last monetary policy announcement in December, BoC Governor Tiff Macklem struck a distinctly more hakwish tone, indicating the Bank was "not comfortable" with inflation. He also indicated that the Canadian economy has significantly absorbed and overcome the impact of the pandemic driven economic downturn.
Money markets viewed this December statement as a clear indication of aggressive interest rate hikes throughout 2022, which means that today's announcement comes as something of a surprise.
However, today BoC governor Tiff Macklem did also note that the economy is now operating at full capacity, indicating there is less incentive for keeping rates this low for much longer. Today's announcement seems more likely to be an Omicron related delay than a deviation from analyst expectations. The anticipated series of rate hikes will likely start soon, most probably kicking off at the Bank's next Rate Statement in March.