Bank of Canada January 2022 decisions | General financial discussion | Discussion forum

This part of their statement appears to be key, although I don't know what it means in real terms:

"The Bank will use its monetary policy tools to ensure that higher near-term inflation expectations do not become embedded in ongoing inflation.

While COVID-19 continues to affect economic activity unevenly across sectors, the Governing Council judges that overall slack in the economy is absorbed, thus satisfying the condition outlined in the Bank’s forward guidance on its policy interest rate. The Governing Council therefore decided to end its extraordinary commitment to hold its policy rate at the effective lower bound. Looking ahead, the Governing Council expects interest rates will need to increase, with the timing and pace of those increases guided by the Bank’s commitment to achieving the 2% inflation target."
https://www.bankofcanada.ca/2022/01/fad-press-release-2022-01-26/

I'm no economist but it seems to me they are fixated on impact of covid and are ignoring other factors which will continue to fuel inflation. They seem to be a group of short term thinkers, which is hard to believe, but it's the only conclusion I can come to.

I suspect BoC came to the conclusion that higher rates right now would not solve supply chain inflation but would be a headwind for debt servicing by gov'ts, corporations and individuals alike (personal loans and mortgages). That all said though, doing nothing does not put some brakes on asset inflation (stocks and housing prices) and that is disappointing.

Supply chain inflation is a sticky issue. It extends from manufacturing centres where there is havoc in production line output, and in shipping and logistics getting goods to the retail shelves. That is not solvable by rate increases except indirectly through reducing consumer demand. One might argue that households having to pay more to service debt would do that, and it should, but it also puts a dampener on corporations making the investments to de-bottleneck supply chain issues.

Borrowers have already had months of notice that rates would go up.
Renewing mortgages is not a big issue as they can normally just extend the term if necessary.
It's buying a home that remains difficult, especially for first timers. Those folks need to see the market cool somewhat, foreign buyers curbed, and developers tamed which will lead to more supply. right now, they are probably going to end up paying about the same, regardless of whether it's for higher interest or higher prices.
So I don't think any of this should prevent increasing the rate.

As for government, I'm not sure how much they interfere. All governments always want cheaper rates, of course, because all governments are always in debt. But they can achieve a similar result by increasing revenues, which means a healthy economy that produces more income in taxes.

My impression is that BoC doesn't think the economy is quite healthy enough yet. They have this squarely pegged on covid, rightly or wrongly. According to this logic, we'd all be really happy now with our much increased rates if only it hadn't been for covid. I doubt it. And there will always be a new crisis to blame it on.

Inflated house prices give people a false sense of "feeling rich", unless of course prices stay high forever. But guess what, if RE prices keep going up, it just feeds inflation too...
I am in the camp a house is a place to live, not an investment and definitely a house owner should not do a high 5s everytime the news say house price up 30% in the past year....

I think the BoC may have wanted to go with a modest rate increase this month (0.10 to possibly 0.25); however, they likely held back, although they'll never confirm this publicly, on the back of the U.S. Federal Reserve decision. Otherwise, the loonie would've surged, and that would've hurt an already beleagured import/export sector. While central banks say they are not governed by other central bank decisions, the reality is that they very much are, and in this way, the U.S. Fed looms large over other central bank decisions. In many respects, it is the de facto Bank of International Settlements.

On another note, kudos to CIBC economists who bucked the consensus call and said the BoC would not raise rates at its January meeting.

Cheers,
Doug

I note that the 5year GofC bond rate dropped a bit this morning while the US 5year Government bonds went up a bit. Toronto stock market is up today (along with US markets) so investors in the TSX seem content with the "no change" in the BofC rate. I think the raising of rates by the BofC will be v-e-r-y gradual. I do not think there will be any big increases in GIC rates after the increases we have already seen this month.

I know someone with a manufacturing plant in China, recently unable to get much stuff out of there due to China lockdowns (heightened due to Olympics they're trying to stage) plus no containers.

I have zero confidence in anything the BoC says about what is going to happen in the future, be it next rate date or a year from now. The only thing you can count on with them is what they are actually doing. They are always very willing to change their predictions about the future, either about external factors or their own decisions. This may be realistic, but you can't count on them any more than any other prognosticator. They all depend on the same data.