Maturing Government of Canada bonds on the Bank’s balance sheet will no longer be replaced and, as a result, the size of the balance sheet will decline over time.
These factors are the primary drivers of a substantial upward revision to the Bank’s outlook for inflation in Canada.
In the United States, domestic demand remains very strong and the US Federal Reserve has clearly indicated its resolve to use its monetary policy tools to control inflation.
Growth looks to have been stronger in the first quarter than projected in January and is likely to pick up in the second quarter.
The Bank forecasts that Canada’s economy will grow by 4¼% this year before slowing to 3¼% in 2023 and 2¼% in 2024.
CPI inflation is now expected to average almost 6% in the first half of 2022 and remain well above the control range throughout this year.
The timing and pace of further increases in the policy rate will be guided by the Bank’s ongoing assessment of the economy and its commitment to achieving the 2% inflation target.
The next scheduled date for announcing the overnight rate target is June 1, 2022.