The Bank of Canada kept interest rates unchanged, but said it will need to tighten monetary policy in the coming weeks to contain the highest inflation in three decades.
Policymakers led by Governor Tiff Macklem left the central bank’s main policy rate at 0.25%, where it has been since March 2020, citing uncertainty due to the resurgence of the coronavirus.
In a Wednesday decision, they also pledged not to increase borrowing costs and said the economy of Canada appears to have almost fully recovered from the pandemic, a sign that they plan to adjust rates in their next decision on March 2.
The Canadian dollar and short-term bond yields fell. Money markets were pricing in a 70% chance of a rate hike, while economists were more skeptical with just 12 out of 27 predicting a hike this week.
The decision suggests officials fear now is not the time to raise borrowing costs just yet, as the country grapples with rising coronavirus cases and new lockdowns.
Without embargo, the suspension illustrates a possible cautela of the central banks in general to seguir adelante agresivamente con el adjus y podría pour como un señal moderada solo unas horas antes de que la Reserva Federal de EE.UU. anuncie su decisión de política el miércoles in the afternoon.
With investors not anticipating a US rate hike, Fed policymakers are expected to announce a decision in March.
At the same time, Canada’s central bank is sending clear warnings that higher borrowing costs are imminent. In a series of new quarterly forecasts released on Wednesday, officials said the economy had reached full capacity as the recovery was stronger than expected at the end of 2021 and supply disruptions were worse than expected.
The Bank of Canada said earlier that removing the economic slowdown was a necessary condition to start tightening monetary policy.
The rapid spread of the Omicron variant last month led to shutdowns in Ontario and Quebec, Canada’s two most populous provinces, and many restrictions are still in place. But the bank said it expects the impact to be temporary and limited.