The BoC has signaled that interest rates will stay at a record low of 0.25% until 2023, when it expects the economy to reach its potential.
"They have to acknowledge that the outlook is better," said Andrew Kelvin, chief Canada strategist at TD Securities. "At the same time they don't want to encourage runaway expectations for near-term rate hikes."
The average forecast for IPCA consumer price inflation at the end of this year rose from 3.9% a week ago, according to the latest weekly "FOCUS" survey of over 100 economists, rising further above the central bank's official goal of 3.75%.
A persistently weak exchange rate, strong global commodity prices and growing concerns over the government's fiscal position are all pushing inflation expectations higher.
The consensus forecast of 20 analysts and economists polled in late February suggested the central bank would hold its benchmark rate at 4.25% throughout 2021. Forecasts for the year-end ranged from 4.0% to 5.5%.
Analysts forecast inflation would rise to 5.3% in the first quarter of 2021 before gradually slowing below the 4% target to 3.8% by the end of the year.
The average forecast of the benchmark Selic rate at the end of this year rose to 3.75% from 3.50%, while the end-2022 forecast remained steady at 5.00%.
Economists at Barclays reckon the central bank will raise rates at its next policy meeting in March.
The central bank left interest rates unchanged on Thursday, while the board saw substantial risks to staff forecasts from more prolonged anti-pandemic measures than the outlook assumes.
The "Longer-lasting pandemic-induced downturn scenario" predicts slower growth of the interbank rate (PRIBOR), a proxy for the central bank's main rate.
The central bank said keeping rates on hold remained consistent with its policy of achieving an inflation target of 7% plus or minus 2% and price stability over the medium term.
Globally, economic activity remains subdued despite the accommodative financial conditions, as the second wave of the COVID-19 pandemic.
That would lead to markedly lower economic performance ... and thus there would probably be smaller need for tightening of monetary conditions when it comes to the setting of interest rates.
The bank said its forecast assumed around three standard 25 basis-point interest rates increases later this year.
The full content of the interview with the National Bank of Poland (NBP) governor indicated that stable interest rates is still the most likely scenario.
Of 21 analysts polled by Reuters, 19 had expected rates to remain on hold.
