Canada’s central bank declined to raise its benchmark interest rate on Wednesday but said interest rates will have to rise in the future as the economy rebounds.
The Bank of Canada said that looking ahead, it expects interest rates will need to increase as it expects economic growth to bounce back. The bank is keeping its key overnight interbank interest rate target on hold at 0.25%. It said inflation expectations have moved up in the short term.
Bank of Canada Governor Tiff Macklem said the bank expects the omicron wave to have less of an impact on the economy than previous waves of COVID-19.
“Today marks the final step in exiting from emergency policies,” Macklem said. He said the bank is removing the commitment to hold the policy rate at its floor of 0.25%.
“We want to clearly signal that interest rates will need to increase,” Macklem said. “Inflation is uncomfortably high.”
The announcement comes ahead of a announcement by the U.S. Federal Reserve.
CIBC chief economist Avery Shenfeld said he expects the Bank of Canada to raise rates in March if the country gets better news about the omicron variant.
“The Bank of Canada judged that a fresh pandemic wave wasn’t the opportune time to launch into a rate hike cycle, or just wanted to formally end its forward guidance before actually pulling the trigger, but left no doubts that rate hikes are coming,” Shenfeld wrote in a note to clients.