The Bank of Canada will do “its job” in the face of the threat of inflation, she assured when announcing an acceleration of the return to normal of its monetary policy.
The governor of the Canadian central bank had a message for Wednesday. “I want to assure Canadians that we can and will keep inflation under control,” hammered Tiff Macklem at a press conference during the unveiling of the fall edition of his Monetary Policy Report. We understand what our job is. Our job is to make sure that the price increases we are seeing in several areas do not translate into inflation. And we will do our job. “
While the Bank was not yet ready to start raising the price of silver in Canada – its key rate having been kept at its lowest level of 0.25% – it nevertheless put forward the probable timing of its first hike. .
First set, during the darkest days of the crisis, at 2023, the start of this rise in interest rates was reduced this spring to the second half of 2022. These “forward-looking indications” are now set in the middle of next year, that is to say “somewhere between April and September” 2022, said Tiff Macklem.
For now, the Bank of Canada is ending its exceptional injections of liquidity into the financial market. Gradually reduced from $ 5 billion per week to $ 2 billion, its quantitative easing program will now be content to buy back federal government bonds at the same rate as those it already holds will expire, or at an average rate of 4 to 5 billion per month. The Bank’s balance sheet has nearly increased fivefold since the start of the COVID-19 pandemic, and it currently stands at around $ 500 billion.
Soaring prices
The Bank of Canada admitted on Wednesday that inflation “is expected to stay higher for longer” than it had forecast in July, in the previous version of its economic forecast.
Today, she expects it to flirt with 5% by the end of the year before starting to slowly descend back to around its 2% target by the end of 2022.
More than two-thirds attributable to the surge in energy prices, supply chain disruptions and other “bottlenecks” that are forcing the recovery, these price increases fortunately still do not seem to be transmitted. to more general factors, such as wages or the expectations of consumers and businesses.
The logistical and economic constraints blowing on the inflationary embers are also hampering the recovery of the Canadian and global economies, noted the Bank of Canada.
Despite a good rebound in the second half of the year after a slump in the second quarter, the latter was forced to revise sharply downwards its economic growth forecasts for July for Canada, from 6% to 5.1% this year and 4.6% to 4.3% next year, before seeing a reversal of the situation in 2023 (from 3.3% to 3.7%).
Some pitfalls
“I am pleasantly surprised at the progress of our economy since the start of the crisis,” said Tiff Macklem, highlighting in particular the progress of vaccination. “We had never closed and reopened the economy before, so there were some pitfalls to be expected. “
Much the same phenomenon occurs in the job market, according to the Bank of Canada. Here again, we can see, and rejoice, a return to the number of jobs before the pandemic and a recent catching up on the part of workers more affected by the crisis, such as women and young people.
I am pleasantly surprised at the progress of our economy since the start of the crisis
On the other hand, vulnerable workers are still lagging behind and the number of long-term unemployed remains at record levels. Paradoxically, the problem of labor scarcity has also worsened. But, again, Tiff Macklem believes “it just takes time for employers to find people with the right skills and for workers to find the right job for them.”
Rising interest rates
The announcement of a faster-than-expected hike in the Bank of Canada’s key rate surprised financial markets and analysts on Wednesday. “It’s the return of normal times,” said Laurentian Bank chief economist Sébastien Lavoie, who says he now expects the Bank’s rate to drop from 0.25% to its pre-pandemic level. of 1.75% “for the end of 2022 or the beginning of 2023”, a little earlier than the forecasts of his colleagues at the National Bank, who now speak of a total increase in interest rates of one point. percentage in 2022.