The Bank of Canada reaffirmed its 2% inflation mandate today while adding some tweaks around employment but sticking with the same message. Macklem's comment here highlights that they're not in the mood for keeping rates especially low, which is a sign that rate hikes are planned for the 'middle quarters' of 2021, which is their guidance. Moreover, the market should be increasingly comfortable pricing in hikes in the early part of that window.
That said, Canadian 10-year yields are down to the lowest since Sept 27 today in the swirl of worry about omicron, which will find fertile land in Canada due to lower rates of previous infection, in spire of high vaccination rates for two doses.
Other comments from Macklem:
- We're focused on bringing inflation back down without choking off the recovery
- Renewal of framework makes it explicit what the BOC has already been doing in regards to employment
- BOC will explain when it's using flexibility in the framework
- Neutral rates are likely to be lower than in the past
Freeland, meanwhile, was emphatic that this is not a Fed-style mandate around full employment and instead is operationally focused on inflation.
