Bank of Canada rate hike

Governor Tiff Macklem has been unambiguous in recent weeks that interest rates need to keep rising to get prices under control.

Crucially, from the Bank of Canada’s perspective, the sources of inflation are changing. It argued the bank should stop to assess the impact of its previous five rate hikes before barrelling ahead with more. A smaller rate hike “could mean further [Canadian dollar] weakness, especially in relation to what is priced, which would go against their messaging and look highly inconsistent,” he said in a note to clients. “Against that background, we are more worried about upside risks to inflation, than downside risks [to the wider economy].” Macklem said this month that a weaker dollar means the bank may need to raise interest rates more than would otherwise be needed. Analysts think the bank is nearing the end of its monetary policy-tightening campaign, but Mr. A weaker exchange rate makes imported American products more expensive, adding to inflation. “We have yet to see a clear turning point in underlying inflation,” Mr. But the latest CPI data, published last week, showed that inflation is broadening, with most goods and services experiencing oversized price increases. How big it goes this week will come down to its assessment of competing risks. Eight months into one of the fastest rate-hike cycles on record, the central bank is in a precarious spot. (There are 100 basis points in a percentage point.)

The central bank is expected to raise the policy rate by 50 or 75 basis points as part of the Bank's strategy of front-loading rate hikes.

“But inflation isn’t likely to return fully and sustainably to the central bank’s target range of two-to-three per cent until the economy slows further,” Janzen said in an Oct. Excluding food and energy, inflation rose at an annualized pace of 5.4 per cent compared to the 5.3 per cent recorded a month earlier. Rising rates have been working their way through the economy, weighing on demand and growth. Nathan Janzen, assistant chief economist at RBC Economics, pointed to a 0.6 per cent drop in hours worked in September and flagged softening sentiment in the Bank of Canada’s third quarter business outlook survey RBC isn’t alone; the Bank of Nova Scotia echoed this sentiment with chief economist Jean-François Perrault “But we expect them to acknowledge both the likelihood of recession and the probability that future rate hikes will be smaller. It’s a mounting risk central bankers can no longer afford to ignore, said the Desjardins team. Only once these new economic forecasts are made clearer could the Bank begin to make major shifts in policy and communications, according to Desjardins. “But we expect the accompanying statement or press conference to at least implicitly concede that future adjustments won’t be as large,” they added. “Governor Macklem knows he can’t continue like this forever,” wrote Royce Mendes, managing director and head of macro strategy at Desjardins, and associate Tiago Figueiredo in an Oct. The team at Desjardins expects Bank of Canada governor Tiff Macklem’s tough talk on inflation would push him to hike rates by another 75 basis points, bringing it to four per cent. Some economists are expecting the Bank to take its foot off the gas following this rate decision.

A disappointing inflation reading will prompt the Bank of Canada to hike its overnight interest rate by at least half a point this week.

“Lenders are responding to surging bond yields and may be pricing in an expected 75 basis point hike ahead of Wednesday,” says Victor Tran, RATESDOTCA mortgage and real estate expert. Assuming the Bank of Canada increases by a further 50 basis points, variable rates with most lenders will be the same or higher than their respective five-year fixed rates, which is rare.” “While the hikes are needed in order to tame inflation, this will undoubtedly make financing more difficult for the average buyer or homeowner.” TD on the same day announced a 20-basis point increase in fixed-rate mortgages,” reads their statement. And there are a couple of major factors out of their control; at the same time we should step back and recognize they have actually managed to curb or stop it — they’ve not been able to bring it down, but they’ve stopped it from increasing rapidly. “Anyone holding a variable-rate mortgage or balance on a home equity line of credit (HELOC) will be looking to the Bank’s language to see if there are any signs that the rate hikes are nearing an end. So, even if housing is cracking more significantly and core inflation backs off sooner than in the US, the Bank might not have the luxury of easing off the tightening brakes when it would otherwise want to.” That will bring Canada’s benchmark cost of borrowing to 3.75% this month and to 4.5% by year end, which will likely be its terminal point. These interest rate increases follow Scotiabank on October 12 announcing a 25-basis point increase for fixed-rate mortgages and a decrease in spread from prime for variable-rate mortgages that amounts to a 10-basis point increase. This isn’t going to sit well in Ottawa,” he writes. “It’s my opinion the Bank of Canada is recognizing they can only impact so many things. [LowestRates.ca](https://www.lowestrates.ca/) expert and licensed mortgage broker, another rate hike will further slow in the nation’s housing market as higher rates continue to whittle affordability for buyers; Canada’s average home price fell by nearly 7% annually in September, the latest in a trend of monthly declines that kicked off with the BoC’s first hike in March.