Live updates: What you need to know about the Bank of Canada rate decision today

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It’s a big day today with hotly anticipated decisions on interest rates from the Bank of Canada and the U.S. Federal Reserve. The two banks are staring down decades-high inflation as they try to safely transition their economies out of the pandemic. Which way will they go? The Bank of Canada is up at 10 a.m. and the Fed follows at 2 p.m. We will have full coverage of the decisions, the press conferences and the market reactions right here.

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10 a.m.

It’s a hold!

9:28 a.m.

Money markets this morning see a roughly 65 per cent chance the Bank of Canada will boost the overnight rate to 0.5 per cent from the current record low 0.25 per cent. Analysts surveyed by Reuters are less certain, with 77 per cent seeing the central bank holding until at least March.

9:18 a.m.

The era of ultra-low pandemic interest rates, which has helped drive Canadian home prices to all-time highs, could end today. That could put Canadians, one of the most indebted populations, at risk.

Just how significant of an effect higher rates will have will depend on how quickly the central bank moves.

Mortgage expert Rob McLister told the Financial Post that those holding variable-rate mortgages will be hit first, with the costs passed along between one day and one week following a rate hike.

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McLister added that a 0.25 per cent rate increase, which is the amount the market is expecting as a first hike, would have no impact on qualifying for a mortgage since the minimum qualifying rate is already more than 235 basis points over five-year fixed rates.

“For prospective prime borrowers, discounted five-year fixed rates would have to jump over 36 basis points for borrowers to start facing qualification challenges. And it would only be an issue for more highly indebted mortgage applicants (I’d estimate roughly 1 in 5 mortgage applicants),” McLister wrote in an e-mail.

Stephanie Hughes’ breaks down how homeowners will fare during the hiking cycle.

9:03 a.m.

What will higher interest rates do to Canada’s already lacklustre business investment?

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Some might call Canada’s business investment disastrous, especially since oil prices collapsed in 2014. Company spending on machinery, software and non-residential property, like factories, was under 10 per cent of Canada’s $2-trillion gross domestic product (GDP) in the third quarter, down from 13 per cent in 2014.

In the U.S. it’s nearly 15 per cent.

The pandemic hasn’t helped, with executives remaining more fiscally conservative amid the chaos. As the Bank of Canada moves to tame price pressures by raising borrowing costs, there’s a risk that higher interest rates could dampen investment intentions.

But economists said that Bank of Canada Governor Tiff Macklem probably can avoid a negative shock to business sentiment by communicating clearly and ratcheting up borrowing costs slowly.

Read more from the Financial Post’s Bianca Bharti

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8 a.m.

What?

The Bank of Canada’s first interest-rate announcement of 2022 .

When?

The Bank of Canada will release its policy statement and quarterly economic report at 10 a.m. Ottawa time . Keep an eye on financialpost.com for real-time coverage throughout the day.

Who?

Bank of Canada Governor Tiff Macklem took over from Stephen Poloz in June 2020. By then, the central bank had done about all it could to reverse an epic recession. It had dropped the benchmark interest rate to 0.25 per cent from 1.75 per cent at the start of year. It had pledged to swap hundreds of billions of dollars worth of financial assets for cash. It had begun creating money to buy government bonds, Canada’s first experiment with quantitative easing, or QE. But there was still one weapon left in the arsenal that Macklem liked. He used his first interest-rate announcement to pledge to keep the benchmark rate near zero until sometime in the second half of 2022, conditional on the outlook for inflation. Central banks typically avoid making explicit promises of that nature. Among the reasons, as Macklem has experienced in recent weeks: the future is hard to predict.

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Who else?

Carolyn Rogers , the former international financial regulator who was appointed senior deputy governor last year and started her job officially in mid-December, participated in her first round of policy deliberations. For the first time, Governing Council has seven members instead of the usual six. That’s because in July Macklem appointed Sharon Kozicki as a deputy governor to add some diversity to an all-male group as he waited for Rogers to finish her work at the Basel Committee on Financial Supervision in Switzerland. Macklem opted to leave a team of seven in place until one of his deputies resigns, at which point Governing Council will return to its typical roster of five deputies and one governor.

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Why all the excitement?

The consumer price index (CPI) surged 4.8 per cent in December from a year earlier, the most in more than 30 years. The Bank of Canada’s agreement with the government requires it to keep the CPI advancing at an annual rate of about two per cent, the midpoint of a comfort zone of one per cent to three per cent. Inflation has been outside the high end of that band since April. That’s a long time to be so far off target. Prices of financial assets linked to short-term interest rates suggest that most traders anticipate an interest-rate increase today to keep inflation from getting even more out of hand. The biggest worry at the central bank is probably that consumers and suppliers will begin demanding higher wages and more money for the goods and services , respectively, because they think current price spikes are permanent. That’s how inflationary spirals start. The central bank probably wants to break that psychology.

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Why aren’t Bay Street expectations of a rate increase universal?

One hundred and eighty-nine people died of COVID-19 on Jan. 24 , pushing total deaths since the start of the pandemic to 32,786. The health crisis isn’t over and Macklem might dislike the optics of raising interest rates while much of the country is in a state of semi-lockdown. There’s also his and the central bank’s reputations to consider . Remember that promise to keep the benchmark rate at 0.25 per cent until the second half of 2022? The Bank of Canada has already backtracked once; last fall, revised forecasts showed the economy was on track to reach its non-inflationary speed limit sooner than expected, and policy-makers advanced the timing of the first interest-rate increase since the start of the pandemic to the “middle quarters” of this year. The Bank of Canada’s next two policy announcements are March 2 and April 13. Would waiting another couple of months really make that much difference, especially when the central bank’s credibility could be at stake? Economists at Royal Bank of Canada, the country’s biggest lender, are among the minority of holdouts who think Macklem will wait until the spring. Much of the inflation is coming from supply-side factors such as China’s zero-tolerance policy for COVID-19 infections, which disrupts factory production and has forced the temporary closure of ports, and terrible weather in important agricultural regions. Higher interest rates in Canada will do nothing about any of that.

Where will interest rates be at the end of the year?

Higher than they are now , that’s for certain. Even the economists who think it would be a mistake to panic reckon the benchmark rate will need to rise by at least one percentage point this year. The jobless rate fell below six per cent in December , a rate many economists associate with full employment. Monetary policy is currently is set for an economic emergency and the emergency is over.