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Bank of Canada offers fresh hints that interest rates will rise next year as economy surges

Interest Rates

A reassurance from the Bank of Canada that "interest rates will be low for a long time," as the bank's governor, Tiff Macklem, told us last year, appears to have been revised.

New signs of a strong recovery — including the bank's prediction of a stunning global growth rate of nearly seven per cent this year — plus indications that the underlying foundation of the Canadian economy has not suffered serious damage from the COVID-19 pandemic, mean the central bank is scaling back on monetary stimulus.

Not only did Macklem reveal that he is slowing the rate of bond purchases, but rock-bottom interest rates — what the bank calls "the effective lower bound" — are forecast to come to an end sooner than expected.

"We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the two per cent inflation target is sustainably achieved," the Bank of Canada said in its Wednesday statement. "Based on the bank's latest projection, this is now expected to happen some time in the second half of 2022.

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