First National Financial LP

Residential Market Commentary - BoC sings same song

  • First National Financial LP

The Bank of Canada has made its final rate announcement of the year and it ended where it started – holding at 0.25%.

The December announcement stuck pretty much to the same script as the last announcement in October (there is no setting in November):

  • The economy continues to recover
  • The labour market is gaining strength
  • Consumer inflation is high but is expected to moderate in the 2nd half of next year
  • The Bank continues to watch inflation carefully
  • Rates will stay low until the “slack” comes out of the economy and the Bank’s 2% inflation target can be “sustainably achieved”

Market watchers tend to be characterizing the latest announcement as a wait-and-see approach.  The Bank also repeated, it did not expect to move on interest rates until the “middle quarters” of 2022.  Current thinking is, that means April rather than June.  There is no setting in May.

Speculation about a January increase, triggered by last month’s strong jobs report, seems to have been silenced.

One factor to keep an eye on is U.S. inflation.  It hit a 40-year high of 6.8% last month, sparking calls for the U.S. Federal Reserve to intervene.  If the Fed were to respond with a rate hike to tamp down inflation it could open the door to a similar move by the BoC.  But good economic growth on both sides of the border and the uncertainty brought by the omicron variant of COVID make early rate increases seem unlikely.