May 17, 2022

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The Bank of Canada holds interest rates at 0.25% and points to immediate increases

The Bank of Canada has kept interest rates unchanged, but has said it will tighten monetary policy in the coming weeks to curb high inflation for three decades.

Policymakers, led by Governor Tiff McClellan, have left the central bank’s primary policy rate at 0.25% since March 2020, citing uncertainty over the resurgence of the corona virus.

At a conclusion on Wednesday, they promised not to raise borrowing costs and said the economy Canada It seems to have almost completely recovered from the epidemic, which plans to fix the fees at their next end on March 2nd.

The Canadian dollar and short-term bond yields fell. Money markets set a 70% chance of a rate hike, while economists were more skeptical of forecasting a 12 out of 27 this week.

The decision suggests that with corona virus cases and new lockdowns on the rise, officials are currently concerned that the time is not right to raise borrowing costs.

However, the suspension illustrates a possible warning from central bankers in general to move aggressively and tightly, and could be seen as a bad signal just hours before the US Federal Reserve announced its policy decision on Wednesday afternoon.

While investors are not expecting a US rate hike, central bank policymakers are expected to announce a move in March.

At the same time, the Central Bank of Canada is sending out stern warnings that high borrowing costs are imminent. In a new quarterly forecast released on Wednesday, officials said the economy was at full capacity as recovery was stronger than expected in late 2021 and supply disruptions were worse than expected.

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The Bank of Canada has previously stated that the elimination of the recession is a necessary condition for tightening monetary policy.

The rapid spread of the Omigron variant last month led to the closure of two of Canada’s most populous provinces, Ontario and Quebec, and many restrictions are still in place. However, the bank said it expects the impact to be temporary and limited.