Bank of Canada To Issue Another Excessive Interest Rate Hike: Pushing Into Restrictive Territory

Bank of Canada To Issue Another Excessive Interest Rate Hike: Pushing Into Restrictive Territory

The Bank of Canada, which is Canada’s central bank, is anticipated to come out with another excessive interest rate hike in the coming week, pushing its policy interest rate towards restricted territory for the very 1st time in twenty years. However, there is a disagreement over whether a pause will occur afterwards or not.

According to Tiff Macklem, who is the Governor of the Bank of Canada, the Canadian central bank is aiming on reaching the upper end or just a little over the neutral rate, ranging between 2% and 3% in which the monetary policy does not promote or even weigh on the country’s economy. In the past two decades, there has been a downturn in the neutral range.

Money market expectations indicate a 75 BPS increase on the 7th of September in order to raise the policy rate to around 3.25%. It will mark the 4th excessive rate rise of the year and bring the 300 BPS tightening since the month of March to an end. According to a few economists, following the projected interest hike in the coming week, the Bank of Canada may announce a halt. 

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Taylor Schleich, who is the Director of economics and strategy at National Bank Financial, made a statement saying that because of the front-loaded interest rate increases, the Canadian central bank may choose to stop its cycle of rate increases to give the country’s economy some time to gain on. He predicts that the 7th of September could see a 75 BPS increase.

The annual rate of inflation in Canada decreased to 7.6% in the month of July from around 8.1% in the month of June, but it is still significantly higher than the Bank of Canada’s target which is 2%. At the same time, the unemployment rate is at a record-low at just 4.9%.

The Bank of Canada may lean towards a more restrictive approach given that it so far faces criticism for not reacting too quickly when inflation began to break out in the previous year. Andrew Kelvin, who is the Chief Canada strategist at TD Securities, made a statement saying that the central bank was attempting to protect its reputation as an inflation targeter. Failing to meet market prospects will cast doubt on the Bank of Canada’s dedication to the inflation objective.

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