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On 26 October, the Bank of Canada (BoC) added a half-point to its benchmark policy rate, raising it to 3.75 percent and surprising analysts who had widely predicted a three-quarter-point bump.
The bank has lifted its rate six times so far this year, raising the rate from 0.25 percent last spring to the new one, which was last seen in 2008.
The BoC has been the most aggressive among G7 countries in raising its rate and the only one to implement a full-point rate increase in a single move.
The bank indicated this is the first step in easing its campaign of aggressive rate hikes, which has placed the bank among the world’s “top 10” that have raised rates the most this year.
“This tightening phase will draw to a close,” Tiff Macklem, the bank’s governor, told a press briefing. “We are getting closer, but we are not there yet” because “the economy continues to operate in excess demand” and “labor markets remain tight.”
Future increases “will depend on how monetary policy is working to slow demand, how supply challenges are resolving, and how inflation and inflation expectations are responding,” he added.
Canada’s inflation rate has fallen from a high of 8.1 percent over the summer to 6.9 percent in September. The rate of price increases will fall to the bank’s 2-percent target rate by the end of 2024, the bank predicted in a statement.
“We expect rates will need to rise further,” Macklem said, which could mean “another bigger-than-normal increase [or] it could mean that we can move to more normal-size 25-basis-point increases.”
The bank is easing its aggressive campaign of rate boosts, in part, because Canada’s economy could stall through mid-2023 as higher rates bog down consumer spending, he warned.
“Slightly negative growth is just as likely as two or three quarters of slightly positive growth,” he said. “That’s not a severe contraction, but it is a significant slowing.”
The milder-than-expected rate increase indicates that “the BoC will continue to taper its tightening cycle into year-end with a [quarter-point] increase in December, leaving the terminal rate at 4 percent,” Josh Nye, senior economist at RBC Economics, wrote in a note to clients.
“We have several indicators suggesting that we’re playing with fire if we think we can follow the Fed all the way up to 5 percent or so,” Desjardins Group chief economist James Jean told Reuters.
The higher rates already have scorched Canada’s housing market, which saw one of the world’s highest rates of price inflation over the past two years, ballooning 50 percent through last February, The Wall Street Journal reported.
TREND FORECAST: With the average selling price of a home in Canada already down 10 percent, we suggest the BoC held back from raising rates higher because of the critical recessionary pressures that lie ahead. And totally absent from their reporting and analysis is the fact that the national, regional, state and city politicians who imposed strict COVID War draconian mandates on the nation for over two years are 100 percent responsible for inflationary pressures and the now declining economy.
And considering that residential real estate comprised 20 percent of Canada’s GDP in 2021, should interest rates continue to increase at past rates, the economy will quickly descend into recession.