The bank also announced that it is ending reinvestment and will begin quantitative tightening on April 25. Maturing Government of Canada bonds on the bank’s balance sheet will no longer be replaced.
The central bank pointed to the “unimaginable human suffering and new economic uncertainty” as a result of Russia’s invasion of Ukraine, which has contributed to price spikes in oil, natural gas and other commodities. Supply disruptions resulting from the conflict have only added to its “upward revision” on inflation, prompting its more aggressive rate policy.
The statement read: “With the economy moving into excess demand and inflation persisting well above target, the Governing Council judges that interest rates will need to rise further. The policy interest rate is the bank’s primary monetary policy instrument, and quantitative tightening will complement increases in the policy rate. The timing and pace of further increases in the policy rate will be guided by the Bank’s ongoing assessment of the economy and its commitment to achieving the 2% inflation target.”
Despite the hawkish policy statement, there was some optimization. Supply is seen jumping next year to meet strong demand as COVID restrictions are lifted and ease global supply disruptions. Officials are also assuming Canada’s economy won’t be negatively impacted by the Ukraine crisis thanks to the nation’s commodities sector.
