The Bank of Canada delivered another hike to its key interest rate on Wednesday but said this could be the peak for the current tightening cycle.
The central bank raised its policy rate to 4.5 per cent in its first decision of 2023, an increase of 25 basis points. This is the highest the Bank of Canada’s key rate has been since 2007.
Wednesday’s decision marks the eighth consecutive time the Bank of Canada has raised the cost of borrowing, hiking the benchmark rate a total of 4.25 per cent in the past year in an effort to tamp down inflation.
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Most economists had expected the 25-basis-point move.
But the central bank said in a statement accompanying the rate hike that it expects to hold the policy rate at its current level while it assesses the impact of its increases to date.
“We’ve raised rates rapidly, and now it’s time to pause and assess whether monetary policy is sufficiently restrictive to bring inflation back to its two per cent target,” Bank of Canada Governor Tiff Macklem told reporters after the announcement on Wednesday.
He added that hold is “conditional” on whether the economy continues to develop according to its forecast, and he made it clear that additional hikes could be in the cards to get inflation back down to the two per cent target.
Headline inflation has cooled from a high of 8.1 per cent in mid-2022, most recently clocking in at 6.3 per cent in December.
The Bank of Canada said in an updated set of projections Wednesday that it expects inflation to “decline significantly” in the months to come, reaching three per cent by mid-2023 and two per cent next year.
Here, too, policymakers added a caveat. Macklem acknowledged that the Bank’s forecast for inflation depends heavily on global factors such as energy prices. And while goods prices have shown improvement lately, the stickiness of inflation in the services sector is another risk to the Bank’s outlook, he said.
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“Inflation is still over six per cent. Yes, we are certainly seeing clear evidence … that inflation’s coming down. But we do have to be humble. There are a number of risks out there,” he said.
The pause on interest rate hikes could end if the Bank starts to see an “accumulation of evidence” that inflation and other economic indicators aren’t heading the way policymakers expect, Macklem said.
Asked by reporters whether interest rates could start to decline, the central bank governor pushed back on speculation amid money markets that a rate cut is coming before the end of 2023.
“It’s far too early to be talking about cuts,” he said.
More to come.
© 2023 Global News, a division of Corus Entertainment Inc.
https://news.google.com/__i/rss/rd/articles/CBMiSWh0dHBzOi8vZ2xvYmFsbmV3cy5jYS9uZXdzLzk0MzQ4MTkvYmFuay1vZi1jYW5hZGEtaW50ZXJlc3QtcmF0ZS1qYW4tMjAyMy_SAU1odHRwczovL2dsb2JhbG5ld3MuY2EvbmV3cy85NDM0ODE5L2Jhbmstb2YtY2FuYWRhLWludGVyZXN0LXJhdGUtamFuLTIwMjMvYW1wLw?oc=5
2023-01-25 17:46:25Z
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