This morning, the Bank of Canada has announced that they have increased its key interest rate by 0.25%. Therefore, for those who have a variable rate credit product, payments may increase by approximately $11.77 for every $100,000.00 loan.
The current invasion of Ukraine by Russia is a large factor causing uncertainty. Oil prices have increased, adding to inflation around the world.
Canada's economic growth was very strong in the fourth quarter of 2021, at 6.7%. This is much stronger than what the Bank has predicted, hence the high inflation.
The recovery from Omicron is happening quicker than expected, and so consumer spending should increase as public health restrictions are lifting. Housing market activity is also elevated, adding more pressure to housing prices. However, there is still some uncertainty as there could be another variant.
Omicron is expected to be less severe than previous waves, so economic growth will remain healthy over the near future.
Inflation is currently at 5.1%, well above the bank's target rate of 2%. The invasion of Ukraine is putting further upward prices for energy and food-related commodities. Elevated inflation increases the risk that longer run inflation could also drift upwards. The bank plans to use monetary tools to return inflation to 2%, by increasing rates and implementing quantitative tightening.