Volkswacht Bodensee - Bank of Canada keeps benchmark rate unchanged despite inflation

But the bank left the door open to an interest rate hike in March.

"With overall economic slack now absorbed, the Bank has removed its exceptional forward guidance on its policy interest rate," the bank said in a statement.

It said the timing and pace of interest rate increases will be guided by the rate of inflation.

Inflation hit 4.8 percent in December, the highest rate in 30 years, whereas the bank's target is two percent.

The bank revised its inflation forecast, saying it will be nearly five percent in the first half of this year and around three percent in late 2022.

It said the goal of two percent inflation will not be met until mid-2023, rather than in late 2022 as it had thought.

Inflation is rising in several parts of the world due to strong demand for goods, and oil prices are higher than pre-pandemic levels, the bank said.

"The Bank of Canada judged that a fresh pandemic wave wasn't the opportune time to launch into a rate hike cycle, or just wanted to formally end its forward guidance before actually pulling the trigger, but left no doubts that rate hikes are coming," said Avery Shenfeld, an analyst with CIBC Economics.

"The Omicron variant is weighing on activity in the first quarter. While its economic impact will depend on how quickly this wave passes, it is expected to be less severe than previous waves," the bank said.

It lowered its GDP growth forecasts to four percent for this year and around 3.5 percent in 2023.

Across the border in the United States, the Federal Reserve is also expected to raise interest rates soon after years of cheap money in order to fight soaring inflation.

K.Thomson--BTB