The Bank of Canada met for the first time in 2022 and held its target interest rate at .25% and the bank rate at .50%, with the deposit rate at .25%.
Overnight rate –
This is the interest rate that the banks lend funds to each other at the end of the day. This rate is low because they are considered the most credit worthy institutions. This maintains federally mandated reserve requirements. They predict short term interest rates and can affect employment and inflation indicators. If the overnight rate increases, it is more expensive for consumers because the extra costs are passed on to consumers.
Bank Rate –
This is the interest rate that the Bank of Canada lends money to our domestic banks, also in terms of very short loans. Managing this rate helps the Bank of Canada affect economic activity.
The Bank of Canada interest rates only affect short term adjustable or variable interest rates. Such as the benchmark rate that lending institutions use as their prime rate. As of today, prime rate at most institutions is 2.45%. If you have an adjustable interest rate, such as a variable rate or line of credit, it is most likely 2.45% plus or minus a figure.
These rates were held Wednesday by the Bank of Canada however, they are expecting increases to come this year.
The BOC also commented on the following –
Global recovery
The US economy is growing well, but some other countries are more moderate such as China. There has been a strong demand for its goods however supply bottlenecks that are hindering production and transport of goods have increased inflation in most regions of the world. This is not just a Canadian phenomenon.
Oil prices have rebounded to well above pre-pandemic levels even after a decline due to Omicron.
GDP growth
In Canada, the second half of 2021 appears to have been stronger than expected. We hit 2022 with considerable momentum because of government interventions and measures. We are experiencing high employment growth and the labour market has tightened significantly. Hiring is strong, job vacancies are up, and even wage gains are increasing. Housing market activity continues its upward trend with supply and demand issues causing higher purchase prices.
Omicron
Omicron has been affecting economic activity in the first quarter of 2022. Depending on how quickly this covid wave passes, activity should rebound and remain good led by consumer spending on services, exports and business investment.
Jobs
Of interesting note, our economy has shed many jobs in several sectors, especially, food services however, increases in other sectors with higher paid jobs have increased dramatically. This provides support for the notion that the restaurant industry is losing employees to higher paid more professional positions.
Accommodation and food services sectors are down 50.3% of jobs however professional, science and technology service sectors are up by 97.7%. Information, culture and recreational sectors are also up 46.5%.
The good news too is that virtually all of the jobs increases in November (3.2%) were full time while part time employment remains unchanged.
The government of Ontario provides statistics by employment change as per industry in Ontario, from February 2020 to November 2021.
For further labour market info click here.
Press release from the Bank of Canada
