Photo: James Bombales

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.

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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.”

Here, Livabl has gathered some of the reactions and commentary from industry stakeholders on the BoC’s rate decision.

RBC Economics

In a Daily Economic Update, senior RBC Economics economist Josh Nye commented that the BoC’s decision to hold the benchmark rate was “likely a close call.” Nye said that RBC Economics called that the BoC would start raising rates in April with three rate hikes this year, but we could see “upside risk to that call if the BoC does get an earlier start.”

“The BoC has made it clear that rate hikes are coming and likely wants to send a message to Canadians—sooner rather than later—that it is acting to control inflation. Our forecast has been for three rate hikes this year though we see upside risk to that call if the BoC does get an earlier start.

That said, we continue to think the market is over-priced for more than five rate increases in 2022 and the BoC’s patience today increases our confidence that the central bank won’t be overly aggressive in its pace of tightening. The BoC also indicated that, once it begins to raise rates, it will consider exiting the reinvestment phase of QE and begin shrinking its balance sheet. We think such a move could come in the first half of this year, though we’d emphasize that most tightening in financial conditions will come from the BoC raising its policy rate, not shrinking its balance sheet.”

Bank of Montreal (BMO)

According to Douglas Porter, chief economist and managing director of economics at BMO, markets were “heavily leaning” towards a hike today. BMO had been holding to its call of “no change just yet,” but anticipates that the BoC will begin moving at a fast pace in the coming months, with the first hike likely scheduled for early March, followed by April and June.

“We don’t believe that today’s decision to hold steady at all deflects from the fact that rates are going higher in a relatively forceful fashion this year. This specific decision was likely driven by the fact that a) the economy is dealing with a serious short-term hit from Omicron-driven restrictions, and b) the Bank had consistently guided to rate hikes a bit later on, and did not want to so abruptly run against their guidance.

We believe this was a prudent decision, even as we see the need for higher rates (and with pace) as much as any forecaster. Assuming restrictions begin to lighten in the weeks ahead, prepare for rate hikes just five weeks from today.”


Avery Shenfeld, managing director and chief economist of CIBC Capital Markets, predicts that the BoC’s decision to keep the benchmark rate as-is was either based on the fact that a “fresh pandemic wave wasn’t the opportune time to start a rate hike cycle,” or wanted to provide a formal end to its forward guidance “before pulling the trigger.” With that, borrowers can expect a hike in March if the pandemic and its economic consequences have improved.

“How aggressively the Bank will raise rates will depend in part on how much of a growth slowdown it sees as necessary to achieve that inflation outcome. On that score, there’s one factor suggesting that it still sees room to take a moderate path towards tighter policy.

Because it sees supply disruptions coming to an end by the close of 2022, that leaves room for GDP to grow much faster than what we would typically see as its trend non-inflationary potential. Indeed, its growth forecast has an average quarterly pace of 4.2 per cent this year, which sees GDP up 4.6 per cent year over year for 2022 as a whole, and has GDP still seeing a 3.5 per cent gain for 2023.”


The first potential rate hike of 2022 was “always going to be a close call,” according to senior economist James Orlando with TD. With the first increase predicted for March, Orlando wrote that three more could be coming this year.

“Markets were priced for a hike, but the BoC decided it needed to move in a methodical fashion. It did this by stating that overall slack caused by the pandemic has now been absorbed and that it would end its exceptional level of forward guidance. In other words, it is now ready to hike.

Even with growth being impacted by omicron, inflation should be the main concern for the Bank. Consumer prices are growing at five per cent and financial imbalances (housing) continue to rise on the back of low interest rates. From our lens, the BoC needs to move quick. We expect a rate hike in March and three more in 2022. This should lift government bond yields and mortgage rates. Hopefully this will cool some of the froth.”

James Laird, co-founder of and president of CanWise Financial mortgage brokerage, noted in an email statement today that the BoC’s rate hold surprised many in the industry. Those with a variable rate mortgage or home equity line of credit, however, will likely be pleased with their unchanged rate today, but should expect costs to rise this year.

“The Bank surprised many by leaving the key overnight rate unchanged. However, they are sending a strong signal that rate increases are to come, with the first move almost certainly coming in the next announcement in March.

The Bank continues to be of the opinion that temporary supply chain constraints are driving inflation and expect it to moderate in the second half of 2022. Going forward, they have signalled that reducing inflation to their 2 per cent target will be the main factor driving their rate decisions. This suggests several rate increases will occur this year.

Anyone with a variable rate mortgage or home equity line of credit will be pleased that their rate will remain unchanged until at least March, but they should still be prepared for their rate to move higher throughout 2022.

Canadians considering a new fixed-rate mortgage should also be happy, because there will be a temporary pause in the rise of fixed rates. Those shopping for a home should make sure they get pre-approved in order to hold today’s fixed rates for four months.”

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