(Bloomberg). — Wednesday’s policy decision by the Bank of Canada left borrowing costs the same. However, it highlighted the strength of the labour market and concerns about inflation. This will probably keep interest rate rise expectations intact.

Tiff Macklem, Governor of the Bank of Canada, released a Wednesday statement in which he reiterated that the economy still requires a lot more monetary policy support. Officials still made no reference to inflationary pressures as temporary. They also noted that recent job gains are broad-based and the unemployment rate has returned to pre-pandemic levels. 

While the language changes from the previous decision were incremental, there’s nothing in the statement that is likely to derail investor expectations the Bank of Canada is about to embark on an aggressive campaign of rate hikes. Before Wednesday’s decision, investors were pricing in five increases next year, with a more than 50% chance of a first hike by January.

“Inflation is elevated and the impact of global supply constraints is feeding through to a broader range of goods prices,” according to the statement, which added that “recent economic indicators suggest the economy had considerable momentum into the fourth quarter.”

All 22 Bloomberg News economists polled expected the stand-pat decision. As early as this week, markets had priced in around a 20% chance for an increase.

In the statement, the central bank said it would maintain its extraordinary forward guidance that the benchmark overnight policy rate won’t be increased until the recovery is complete. It reiterated that October projections don’t see that happening until the “middle quarters” of 2022.

Officials stated that they will continue to maintain a roughly constant overall hold of Canadian government bonds.

According to them, the world economy has been recovering and inflation continues to rise in many countries. The omicron variant has “injected renewed uncertainty.”

However, the terminology on inflation was modified in some subtle ways. The central bank said the effects of global supply constraints will “likely take some time to work their way through, given existing supply backlogs.” They said they continue to expect inflation to remain elevated in the first half of 2022, before easing back toward 2% in the second half of the year.

“The bank is closely watching inflation expectations and labor costs to ensure that the forces pushing up prices do not become embedded in ongoing inflation,” the Bank said. These forces were described as temporary in a similar statement from October.

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