The Canadian bond market is coming to the view that expected multiple interest rate hikes in 2022 by the Bank of Canada, including one potentially this week, will bring price pressures under control, albeit at a cost of slower economic growth.
Investors expect six hikes in total this year, which would lift the policy rate to its pre-pandemic level of 1.75%. The expected number of increases is up from four in December and two more than markets expect from the Federal Reserve.
Signs of an overheated Canadian housing market could also concern the central bank after data for December showed the average selling price of a home was up nearly 18% from a year earlier.But the potential for an easing in supply-chain disruptions later this year could reduce price pressures, say economists, while past increases in energy prices will fall out of the inflation calculation over time.
Bank of Canada Governor Tiff Macklem said in December that slack in Canada's economy caused by the coronavirus pandemic has substantially diminished, a key sign the central bank would begin hiking rates soon. The Fed has also turned more hawkish.Both central banks tend to raise rates in 25-basis-point increments but could move faster.
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