Bank of Canada

2022 - 12 - 6

'Exaggerated' pandemic benefits fuelled 'excess demand,' driving ... (Financial Post)

Scotiabank estimates Tiff Macklem could have stopped raising interest rates at 2.5% if not for excess demand from pandemic benefits. Read on.

[[email protected]](mailto:[email protected]) “These factors (largely commodity prices and supply bottlenecks) have mostly unwound the gains made over the last year and appear to be slowly working their way through to inflation. While there’s little Macklem can do about the global drivers of inflation, interest-rate policy has considerable influence over domestic demand. The team then expects inflation to fall to four per cent next year before returning to the Bank of Canada’s two per cent target in 2024. 23, 2021, and the last of the pandemic-era supports, the Canada Recovery Caregiving Benefit (CRCB) and the Canada Recovery Sickness Benefit (CRSB), It’s the demand generated by that spending that the Bank of Canada is now trying to offset with higher interest rates, Perrault and Lalonde concluded. They found that half of the upward pressure on prices since the end of 2019 was the result of global factors over which the central bank has little or no control, including U.S. The neutral rate is the theoretical rate at which the central bank and economists estimate that borrowing costs would be neither impeding nor encouraging economic growth. The thrust of the Scotiabank report was to assess what’s driving inflation, not pass judgement on Ottawa’s response to the COVID recession. Article content The recovery had lots of momentum by the end of 2021, suggesting rescue programs could have been wound up. And they found that supply constraints caused by the pandemic explain another 35 per cent of the increase in prices.

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Image courtesy of "BNN"

Bank of Canada Nears the End of Its Interest-Rate Hiking Cycle ... (BNN)

The key question is how much additional tightening is needed to bring inflation to heel in an economy that is already feeling the bite of higher borrowing costs ...

Macklem and his officials have already raised the overnight rate to 3.75% from the emergency pandemic low of 0.25% that held until March. The labor-friendly New Democratic Party is calling for an end to steep rate hikes, warning that further tightening risks deep employment losses and a recession. “This tightening phase will draw to a close,” Macklem told lawmakers two weeks ago. With economic growth seen stalling in coming months, overtightening now could block the path to a so-called “soft landing” in Canada. While the economy expanded by more than expected in the third quarter, underlying details showed consumption and domestic demand slowing sharply. He expects a 25-basis point increase on Wednesday and doesn’t anticipate any overt signal to pause.

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Image courtesy of "The Wall Street Journal"

Economists Split on How Much Bank of Canada Will Raise Rates (The Wall Street Journal)

Analysts expect either a quarter- or half-point increase on Wednesday, as the Canadian central bank nears the end of its rapid rate-rising campaign.

The other half expected a smaller quarter-point increase, to... OTTAWA—Economists are evenly split on how big a rate increase the Bank of Canada will deliver on Wednesday, with the debate focused on whether inflation and consumer demand have slowed sufficiently to allow the central bank to ease off tightening. Economists Split on How Much Bank of Canada Will Raise Rates

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Image courtesy of "DailyFX"

Bank of Canada Preview: Market Positioning Offers up Short-Term ... (DailyFX)

The BoC is due to raise rates by 25 or 50 basis points with market positioning square in the middle of the two outcomes. Positioning is likely to adjust on ...

Therefore, a 25 bps hike would favor a bullish continuation above the 61.8% [Fibonacci](https://www.dailyfx.com/education/fibonacci) retracement of the 2022 major move(1.3651) while a 50 bps hike could see price action consolidate around the 61.8% Fib level GBP/CAD has also exhibited a strong bullish advance after the September spike low and is now showing mixed signals ahead of the 78.6% Fib retracement of the major 2022 move (1.6670). [CPI](https://www.dailyfx.com/education/forex-fundamental-analysis/the-cpi-and-forex.html) components increasing by more than 5%. The 25 bps outcome however, could see another attempt to trade above the 78.6% Fib level For more information visit our comprehensive [education library](https://www.dailyfx.com/education) [ Recommended by Richard SnowTrading Forex News: The Strategy](https://www.dailyfx.com/free-trading-guides#forecastschoices=TRADE_THE_NEWS) Therefore, forward guidance out of the Bank of Canada will be key for the housing market. In addition, sectors of the economy that are more sensitive to interest rates are showing signs of the effects of the accumulated rate hikes. Therefore, the Bank warned against the possibility of a technical recession any time from Q4 2022 to H2 2023. [euro](https://www.dailyfx.com/eur), [pound](https://www.dailyfx.com/gbp) and even the [yen](https://www.dailyfx.com/jpy). [Richard Snow](https://www.dailyfx.com/authors/Richard_Snow) Inflation sits at 6.9%, more than three times the Bank’s 2% target and, more worryingly, price pressures are broad-based with two thirds of The labor market has also gone from strength to strength despite having hiked rates by 3.5% since March.

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Image courtesy of "Toronto Star"

Hefty 50 basis point rate hike expected Wednesday — with ... (Toronto Star)

Most market watchers expect the central bank to raise its key overnight rate by 50 basis points but some say recent signs of slowing inflation could point ...

Royce Mendes, head of macro strategy at Desjardins, expects the Bank to go with a smaller raise of 25 basis points this week. That creates a “tough situation” for the central bank, which has to trust that the big changes it’s making now will pay off, he added. Core inflation, which doesn’t include food and energy costs, has also slowed for the past three months (though it remains well above the Bank’s target of two per cent and the cost of groceries remains a serious problem for many Canadians). Avery Shenfeld, chief economist of CIBC Capital Markets, predicts a 50-basis-point hike, but said the Bank’s messaging will be key. He told the Star there are signs the Bank wants to take a more “balanced approach” because of the long lags between when it acts and when the economy actually slows. After months of increases — the rate started the year at 0.25 per cent and is now 3.75 per cent — there are signs those hikes are starting to have the desired effect of slowing the economy and lowering inflation, but the labour market has remained surprisingly strong, pointing toward a larger hike.

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