The Bank of Canada is expected to announce a second rate hike for the year at Wednesday’s policy meeting, with economists predicting it will be the biggest in two decades – half a percentage point – in response to rising inflation. How many more interest rate hikes are expected this year? What will they mean for inflation? Here is everything we know so far before the announcement.
Is the Bank of Canada expected to announce a new interest rate hike at its next policy meeting?
There is widespread consensus among economists that the Bank of Canada will raise its policy rate by half a percentage point, although the bank typically moves by a quarter of a percentage point. This would be the first oversupply of the central bank since May 2000.
When was the last rate hike? Will there be more?
The bank raised its policy rate to 0.5 percent from 0.25 percent in early March – the first increase since 2018 and the start of a successive increase that could bring borrowing costs back to pre-pandemic levels sometime next time. . Lending costs are still much lower than historical levels, so economists and investors expect the bank to move fast. Financial instruments tracking market expectations for interest rate hikes suggest that the bank will raise its policy rate on each of the six remaining decision-making dates in 2022: April 13, June 1, July 13, September 7, 26 October and December 7. would move the policy rate above the pre-epidemic level of 1.75%. Bank of Canada Governor Tiff Macklem said higher borrowing costs are needed to prevent inflation expectations from coming to a halt and to ensure that demand in the economy does not exceed supply, further pushing up consumer prices. “For households and businesses that are already experiencing inflation, higher borrowing costs can be doubly painful. “However, a tighter monetary policy is needed to reduce the parts of inflation that are due to domestic demand,” he said earlier last month.
Why do bankers predict huge interest rate hikes and what is its significance?
Canada’s top central bankers hinted in speeches last month that there was a big increase at the table. The Bank of Canada Business Outlook Survey, published April 4, adds to the argument that the central bank may need to make such a move. According to a Reuters poll, a majority of economists are also calling for a half-point increase this month, including Canada’s five largest banks and the National Bank. The Big Five is also expecting another half-point increase in interest rates in June, although the broader poll expects the pace to slow to quarter-point increases each month, raising the policy rate to 2 percent by the end of the year. 2022. Bank of Canada Deputy Governor Sharon Koziki said the central bank was “ready to act vigorously” to bring high inflation under control, meaning interest rate hikes could be higher – and come sooner.
What does an increase in interest rates mean for inflation?
The Bank of Canada’s decision to begin tightening monetary policy is a response to the higher inflation of recent decades, which has eroded the purchasing power of the Canadian dollar and called into question the central bank’s credibility as an inflation fighter. It has also become clear in recent months that the Canadian economy has largely recovered from the pandemic-induced recession and no longer needs extraordinary monetary policy support. Rising interest rates theoretically reduce both inflation and people’s expectations for future inflation. Inflation hit a three-decade high of 5.7% in February – almost three times higher than the bank’s inflation target of 2 percent. Rising prices for oil and agricultural products, which have soared as a result of Russia’s invasion of Ukraine, are putting additional pressure on consumers. “The lesson from history is that if inflation expectations are met, it is much more costly for inflation to return to target,” McLemm said in early March, which would mean the bank would have to raise interest rates. higher and faster.
What is the global landscape when it comes to interest rate hikes in other countries?
The Bank of Canada is not the only one signaling a more aggressive course for higher interest rates. Other central banks, most notably the US Federal Reserve, have in recent months turned to forecasting a rapid rise in borrowing costs. On March 16, the Fed raised its policy rate for the first time since lowering it at the start of the pandemic. Fed officials expect to raise interest rates at least six more times this year, according to forecasts released in mid-March. Fed Chairman Jerome Powell said the central bank should move “quickly” towards a tighter monetary policy. It is expected to achieve two consecutive interest rate hikes of 0.5 percentage points in May and June to tackle volatile inflation, according to economists polled by Reuters, who also say the chances of a recession next year are 40%. The US Department of Labor announced on Tuesday that US inflation had jumped 8.5 percent in March from 12 months earlier, the largest increase since December 1981. Meanwhile, the Bank of England raised interest rates for the third time in a row on March 17 in a bid to stem rapidly rising inflation. The bank’s monetary policy committee voted to raise the interest rate to 0.75 per cent from 0.5 per cent, bringing the borrowing cost benchmark back to pre-pandemic levels.
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The Bank of Canada is expected to announce a huge interest rate hike this week As inflation soars and wages remain stagnant, Bank of Canada research signals pressure for aggressive move in interest rate hikes Rising interest rates could be higher – and earlier – due to inflation, warns Bank of Canada deputy governor Bank of Canada Governor Tiff Macklem warns of rising inflation, signals aggressive interest rate hike Bank of Canada raises interest rate to 0.5%, raising borrowing costs for first time since 2018 Written by Abigale Subdhan. Quoted from Mark Rendell and Reuters. Your time is precious. Deliver the Top Business Headlines newsletter to your inbox in the morning or evening. Register today.
