![\"Industry](\"https:\/\/www.livabl.com\/articles\/wp-content\/uploads\/2022\/03\/bank-of-canada-march.jpg\")
<\/a>Photo: James Bombales<\/a><\/em><\/p>\nIn its second policy rate announcement of 2022, the Bank of Canada opted to hike its target for the overnight rate<\/a> by 25 basis points to 0.5 per cent. Economists and industry experts are reacting to the bank’s decision, which\u00a0marks the first increase to the mortgage-influencing overnight rate since October 2018.<\/p>\n At the onset of COVID-19, the BoC made<\/a> three emergency cuts to the overnight rate in March 2020, bringing it down from 1.75 per cent in a matter of weeks as the pandemic sent shockwaves through global markets. The overnight rate has stayed at a quarter percent until now.<\/p>\n In it\u2019s announcement, the BoC stated that Canada\u2019s economic growth has been strong, rising 6.7 per cent in Q4-2021, higher than what the bank had projected and an affirmation that \u201ceconomic slack has been absorbed.\u201d With the rebound from the Omicron variant underway, household spending is up and is expected to get stronger as more public health restrictions are lifted.<\/p>\n\n However, the Consumer Price Index for inflation is 5.1 per per cent, well above the BoC\u2019s inflation target of two per cent. The conflict in Ukraine and rising commodity prices could also push inflation higher.<\/p>\n \u201c\u200b\u200bThe unprovoked invasion of Ukraine by Russia is a major new source of uncertainty,\u201d said the bank in a press release. \u201cPrices for oil and other commodities have risen sharply. This will add to inflation around the world, and negative impacts on confidence and new supply disruptions could weigh on global growth. Financial market volatility has increased. The situation remains fluid and we are following events closely.\u201d<\/p>\n As the economy expands and inflation pressures persist, the BoC expects interest rates will need to increase further. The next overnight rate target announcement is scheduled for April 13th, 2022.<\/p>\n Livabl<\/em> has rounded up some of the reactions and commentary from industry experts on the BoC\u2019s rate decision.<\/p>\n Josh Nye, senior economist at RBC Economics, said in a daily economic update<\/a> that there \u201cappeared to be a low bar to raise rates,\u201d after a close call in January. Although January’s job numbers weren\u2019t positive, Nye pointed out that the labour market has bounced back following previous COVID-19 waves and GDP is growing. Further inflation increases \u200b\u200bare likely in light of rising food and energy commodity prices as a result of the Russia-Ukraine conflict.<\/p>\n \u201cThe BoC will have to weigh additional inflationary pressure brought on by that conflict against two-way domestic impacts (increased revenue for commodity producers, higher prices for consumers) and concerns about the global economic outlook.<\/em><\/p>\n Central banks would normally look through geopolitically-driven commodity price pressures, but with inflation already so far above target the BoC has said it is more concerned about upside risks to inflation than downside. Indeed, it said \u2018persistently elevated inflation is increasing the risk that longer-run inflation expectations could drift upwards.\u2019<\/em><\/p>\n In addition to inflation expectations, the bank will be keeping an eye on financial conditions. Government bond yields have fallen amid growth concerns and rising risk aversion, but corporate credit spreads have widened. Other financial channels have been fairly steady\u2014the Canadian dollar has been in a tight range over the past month and the TSX has held up well relative to other equity markets.<\/em><\/p>\n At this early stage, we don\u2019t think geopolitical developments preclude a follow-up hike in April, nor do they argue for the more aggressive tightening path that markets continue to price.\u201d<\/em><\/p>\n According to Benjamin Reitzes, managing director of Canadian rates and a macro strategist at BMO, another rate hike<\/a> could be on the cards next month. If global conditions \u201cdon’t deteriorate massively,\u201d April could bring about another 25 basis points.<\/p>\n \u201cOn the domestic economy, the tone was quite upbeat following yesterday’s better than expected Q4 GDP report. There was solid momentum heading into 2022, and the year started stronger than anticipated as well. That means \u2018first-quarter growth is now looking more solid than previously projected.\u2019 The Bank noted strength in housing, household spending, and trade, and sounded confident employment will rebound from January’s Omicron-induced slump.<\/em><\/p>\n The Russian invasion of Ukraine \u2018is a major new source of uncertainty.\u2019 The Bank sees an upward inflationary impact, while the hit to confidence and new supply issues \u2018could weigh on global growth\u2019. There’s plenty of uncertainty there and the BoC will be watching closely.<\/em><\/p>\n Assuming the economy maintains its forward trajectory and inflation stays hot (little doubt there near-term), the BoC \u2018expects interest rates will need to rise further.\u2019 That’s consistent with the rate hike path narrative and our expectation for another 25 bp rate hike at the April meeting. Meantime, there were no changes on the balance sheet front, though policymakers are looking at ending reinvestment and QT.\u201d<\/em><\/p>\n As \u201cwidely expected,\u201d the BoC chose to hike the overnight rate today, stated senior economist<\/a> James Orlando with TD Economics. That said, the bank\u2019s policy path isn\u2019t fixed, and reassessment may be needed as the Russia-Ukraine conflict plays out.<\/p>\n \u201cIt finally happened. The BoC has lifted its policy rate, likely setting in motion a series of interest rate hikes over the next several months. With employment likely to show a strong rebound next week and inflation continuing to ratchet higher, the need for higher rates is self-evident.\u201d<\/em><\/p>\n \u201cThe Bank of Canada’s policy path isn’t set in stone. The Russia\/Ukraine conflict is causing financial conditions to tighten. Should the spillover become more entrenched, further tightening may need to be reassessed.\u201d<\/em><\/p>\n CIBC Capital Markets\u2019 \u200b\u200bmanaging director and chief economist, Avery Shenfeld, stated that<\/a> data reinforcing the economy\u2019s improvement from Omicron and stronger-than-expected growth may be why the BoC chose to boost the overnight rate now and not in January.<\/p>\n \u201cSo why now and not back in January? The key is that unlike two months ago, the Bank can now point to data showing that \u2018the rebound from Omicron appears to be well in train\u2019 and that would presumably include both evidence from declining hospitalizations, but also the news of a full reopening in previously shuttered or capacity-limited services.<\/em><\/p>\nRBC Economics<\/h2>\n
Bank of Montreal (BMO)<\/h2>\n
TD Economics<\/h2>\n
CIBC\u00a0Capital Markets<\/h2>\n