Bank of Canada keeps its overnight rate unchanged, so does the U.S. Federal Reserve

Variable rate mortgage holders have a good reason to celebrate today – the Bank of Canada made unexpected decision on Wednesday and left its key lending rate unchanged at 0.25%. At the same time, he made it quite clear that rate hikes are coming.

The BoC made no changes in spite of the sharply growing inflation and a stronger-than-expected economic recovery. Before the rate meeting, Bloomberg data showed a 70% possibility of an increase this time.

In its official statement, the bank admitted the slack in the economy has been offset, but the Omicron is currently restraining growth.

“We’ve decided that it was appropriate to follow a deliberate series of steps,” – Bank of Canada Governor Tiff Macklem explained. “Today’s decision is consistent with our deliberate approach we’ve used during this pandemic. Moreover, it reflects the fact that Omicron is affecting the national economy.”

“There’s been a lot of uncertainty, and reopening the economy while Omicron keeps affecting the economy has proven complicated. By being clear and deliberate, we’re trying to cut through the noise so that our monetary policy is a stable source of confidence and not another source of uncertainty,” – he noted.

“The BoC decided that a new pandemic wave wasn’t the right time to start a rate-hike cycle, or just wanted to officially end its forward guidance before pulling the trigger. Anyway, there are no doubts left that rate increases are coming,” – said Avery Shenfeld, chief economist at CIBC Capital Markets.

One more reason that could have led to such a decision, according to Manulife Investment Management Global Macro Strategist Eric Theoret, is the fact that the central bank hadn’t previously notified markets that the output gap had closed.

Theoret added that monetary policy works with a lag, so the BoC may start raising rates in the future as the economy is slowing.

Meanwhile, Federal Reserve in the US kept the target range for their policy rate unchanged at 0-0.25%. According to the Chair Jerome Powell, the central bank was ready to start acting in March and didn’t rule out this possibility at every meeting in order to restrain the high inflation.

Next Bank of Canada rate decision is on March 2, 2022.