This morning, the Bank of Canada announced that it was holding its target for the overnight rate at 0.25 per cent, and opted to remove its exceptional forward guidance on its policy interest rate.

The overnight rate has been held at a quarter percent since the onset of the COVID-19 pandemic, when the BoC cut the mortgage-influencing overnight rate in response to global markets three times in March 2020 to its current level. As a result, Canadians have been able to take advantage of some of the lowest mortgage rates available.

However, as inflation rises to a 30-year high and the Consumer Price Index (CPI) hits 4.8 per cent, industry experts have been watching to see how the BoC will respond. For now, Canada’s bank will keep the overnight rate as-is between now and the next rate announcement scheduled for March 2nd, which may bring about an adjustment.

In a press conference accompanying the announcement today, Governor Tiff Macklem said that the BoC expects interest rates will need to increase to bring inflation back to the two per cent target. Prices for common household items and services have risen faster than usual, but Governor Macklem assured that the BoC will control inflation.

“We expect inflation will remain close to five per cent through the first half of 2022 and then move lower,” he said. “There is some uncertainty about how quickly inflation will come down because we’ve never experienced a pandemic like this before. But Canadians can be assured that we will use our monetary policy tools to control inflation.”

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