Bank of Canada delivers 0.75 percentage point rate hike, moving policy into restrictive territory
The Bank of Canada has delivered another oversized interest rate hike and signaled that its aggressive campaign to increase borrowing costs isn’t over despite signs that inflation has peaked and the Canadian economy is starting to lose steam.
Financial markets and private-sector forecasters say the central bank is nearing the end point, or terminal rate, of its tightening cycle. But the bank gave little indication in the one-page statement that announced Wednesday’s decision of how much further it intends to go. “It’s possible that they go from a 75 basis point hike to 25 basis points in six week’s time,” she said, referring to the central bank’s next rate decision, on Oct. 26. “But I think you would have to see significant movement in inflation expectations and even the economy for them to call it quits at that stage.”
The Bank of Canada acknowledged the softening growth in its rate statement, but noted that “excess demand” continues. That means demand for goods, services and labour is outstripping the capacity to supply them. “Surveys suggest that short-term inflation expectations remain high. The longer this continues, the greater the risk that elevated inflation becomes entrenched,” the bank said in the rate decision statement.
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