Bank of Canada keeps key interest rate target on hold, but warns of looming hikes

Photo: The Canadian Press

Governor of the Bank of Canada Tiff Macklem.

The Bank of Canada is keeping its key interest rate target on hold at 0.25 per cent, but warning it won't stay there for much longer.

The trendsetting rate has been at its rock-bottom level since March 2020 during the first wave of the COVID-19 pandemic as the economy went into a downturn and three million jobs were lost.

The central bank today says the rebound since then and especially over the last few months has been stronger than it anticipated.

In a statement, the bank's senior decision-makers say the economy is running at capacity, including a labour market that is by most standards back at pre-pandemic levels.

The rebound is why it now says it will no longer promise to keep its key policy rate at 0.25 per cent, adding that rates will need to rise to bring inflation back to the central bank's two per cent target.

The central bank warns in its updated economic outlook that inflation rates are likely to creep above five per cent for the first quarter before easing by the end of the year.