50-Basis Point Central Bank Rate Hike in Canada and More Tightening to Come
October 26, 2022
Today’s 50-basis point increase of the Bank of Canada‘s overnight rate target to 3.75% follows five consecutive hikes since March totaling three percentage points. More rate hikes will follow, and quantitative tightening to reverse some of the balance sheet growth during the pandemic will also continue. Although indicators of long-term expected inflation remain fairly well-anchored, measures of near-term expected inflation remain high. There has been a decline in the 12-month rise of CPI inflation from 8.1% to 6.9%, but it mostly represents lower gasoline prices. Price pressures remain broadly based. “The economy continues to operate in excess demand and labour markets remain tight.” The intent of monetary restraint is to slow demand, and the Bank’s GDP 2023 growth forecast at this latest full review of the economy was halved to 0.9% from 1.8% projected three months ago. That’s still above officials’ projections for growth next year of 0.2% in the United States and -0.5% in Euroland. CPI inflation next year is forecast at a tad above 4.0% and thus still above target, but the hope is that inflation returns to target by end 2024. This month’s Board meeting coincided with the release of an updated quarterly Monetary Policy Report.
Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Canada
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