growing holdings of Canadian government bonds, and signalled that it is ready to increase borrowing costs as early as April, saying possible rate hikes could be expected during the “middle quarters of 2022”, a shift from its previous language suggesting the second half of next year.
In doing so, the apex bank has tipped its hat to what has been projected by economists for weeks that price pressures are stickier, and that costs of goods will climb even higher before the year is out. Last month, the inflation rate of Canada reached 4.4 per cent, the highest in nearly a decade, and according to BoC’s Monetary Policy Report, this figure is expected to rise to 4.8 per cent over the final months of 2021.
It is also important to note that higher energy costs and supply chain disruptions could also be attributed to the current consumer price pressures, and the central bank expects the supply chain bottlenecks to peak before the year is out. However, in doing so, the BoC is running the risk of inflation running hot into next year and easing by late 2022.
“This is an incredibly difficult position to be in; they’re really between a rock and a hard place,” Karl Schamotta, chief market strategist at Cambridge Global Payments, told BNN Bloomberg in an interview. “This is really dangerous, of course, because there is the possibility that they wind up choking off the recovery here — that they wind up tightening global financial conditions, and the economy actually slows and that is you know, the worst nightmare that I think any central banker faces right now.”
