Bank of Canada announced a rate hike, possibly the last
2022.12.07 06:33
Bank of Canada announced a rate hike, possibly the last
Budrigannews.com – Analysts said that the Bank of Canada will likely raise its benchmark overnight rate on Wednesday to its highest level in 14 years as it tries to control inflation. This could be a sign that the tightening cycle is about to end as the economy slows down, they added.
The central bank has increased borrowing costs by 350 basis points to 3.75 percent over the past nine months, a rate never seen before. The decision will be made at 10 a.m. Eastern Time (ET) (1500 GMT).
After a string of excessive increases in recent months, including 50 basis points in October, Governor Tiff Macklem has signaled that interest rates could be raised by as much as a quarter of a percentage point. He has also indicated that he is open to a further increase.
Benjamin Reitzes, BMO Capital Markets’ Canadian rates and macro strategist, wrote in a note, “It’s a close call but we’re expecting a 50-basis-point rate hike from the Bank of Canada.”
“The risks remain skewed to the upside, with a non-trivial possibility that inflation is stickier than expected,” despite the fact that “peak inflation may be behind us.”
Money markets are betting on a rise of 25 basis points, but only a small percentage of economists polled by Reuters anticipate a larger increase.
The economy expanded at an annualized rate of 2.9% in the third quarter, and inflation stood at 6.9% in October, still exceeding the central bank’s 2% target.
In any case, a falling property market and one of the greatest family relationships of outstanding debt to take home pay on the planet mean the economy is delicate to rate increments.
The bond market is now indicating that there is a risk in the event that the bank’s tightening campaign exceeds expectations and leads to a deeper recession than anticipated.
The Bank of Canada predicted in October that economic expansion would slow from the fourth quarter of this year to the middle of next year.
According to Royce Mendes, head of macro strategy at Desjardins Group, “Whether or not the Bank of Canada raises rates 25 or 50 basis points, there’s a separate question about whether the Bank of Canada can or should really be committing to raise rates further in 2023.” Given the delay in monetary policy, the necessity of that is less clear.”
Since the beginning of this tightening cycle, the bank has been providing forward guidance stating that it “expects that the policy interest rate will need to rise further.” According to some analysts, it might be time to change that language and allow pausing rates.
Mendes stated, “At some point, the Bank of Canada is going to be in a position where it is going to be appropriate to just let rates be for a while.”
