Business

Economists say Bank of Canada not ready to slow rate hikes yet – National


Economists do not believe Bank of Canada is poised to stall its rate hike cycle, even if there are signs that inflation is easing and the economy is weakening.

Canada’s central bank is expected to announce an eighth straight rate hike on Wednesday, with most commercial banks forecasting a quarter of a percentage point increase. That would bring the central bank’s prime rate to 4.5%, the highest level since 2007.

Although headline inflation slowed significantly last month, Royce Mendes, Desjardins managing director and head of macro strategy, said the labor market remains hot and core inflationary pressures remain. stick tight”.

“I think (the bank will) use all of that to justify further rate hikes,” Mendes said.

Read more:

What is recession? Here’s how a hit to the Canadian economy could affect you

Continue reading:

A green comet rarely seen in 50,000 years is about to appear. This is how Canadians can see it

The story continues below the ad

Last month, the unemployment rate fell to 5%, slightly above the all-time low of 4.9%.

After raising interest rates again in December, the Bank of Canada signaled that it was willing to pause its aggressive rate hike cycle, depending on upcoming economic data releases.

The Bank of Canada can be encouraged that headline inflation is slowing. After peaking at 8.1% in the summer, the annual inflation rate fell to 6.3% in December.

However, Mendes noted that core inflation measures, which do not include more volatile items like food and gas, fell only slightly last month.

For months, market watchers have been trying to guess when the central bank will be ready to stop raising rates, with some expressing optimism that a December rate hike will be the last. together. This time, however, most forecasters seem to agree on a January rate hike, saying next week’s hike will be the last of the cycle.


Click to play video: 'Money matters: What to expect from next week's rate decision'


Money matters: What to expect from next week’s rate decision


Mendes said while he also expects this to be the last rate hike for now, Canadians should not be overly confident that rates will not rise further.

The story continues below the ad

“The Bank of Canada needs to make sure they are doing enough to get inflation back on track towards the 2% target. And that’s not clear yet,” he said.

Read more:

Food prices slow as overall inflation cools to 6.3% in December

Continue reading:

Jeremy Renner is still recovering after breaking more than 30 bones in a snow excavator accident

Even with its intention to stop raising rates, the Bank of Canada is unlikely to back down too much in next week’s announcement, said James Orlando, chief economist at TD.

Orlando expects the Bank of Canada to say it does not foresee a need for more rate hikes, but it will continue to monitor how economic conditions develop. That way, the door will be open for further rate hikes if necessary, he said.

“Obviously, if things get out of hand… they might have to raise rates again,” Orlando said.

Since March, the Bank of Canada has begun one of the fastest rate hikes in its history. After cutting interest rates to near zero during the pandemic to stimulate a slumping economy, in 2022 it briefly raised rates to rein in skyrocketing prices.


Click to play video: 'Rising rates depends on 'fundamental uncertainties' next year, Bank of Canada governor warns'


Bank of Canada Governor warns rate hike depends on ‘fundamental uncertainties’ next year


The rate hike has slowed the housing market significantly and is expected to affect the economy more broadly over time. Businesses and consumers facing higher borrowing costs will pull back on spending, thereby reducing demand in the economy and easing upward price pressures.

The story continues below the ad

So far, however, economists say much of the decline in inflation has been attributed to things beyond the Bank of Canada’s control, such as lower energy prices.

That means the full burden of the rate hike is yet to be felt. Mendes said the Bank of Canada is trying to balance the risks of raising rates too much or too little.

“It was a very difficult balancing act,” he said.

Read more:

Bank of Canada surveys show how Canadians are bracing for a possible recession

Continue reading:

Nelson’s second police officer dies in hospital after avalanche

The Bank of Canada will also release its quarterly monetary policy report on Wednesday, which will provide updated forecasts on economic growth and inflation.

As the Canadian economy reacts to higher interest rates, many economists expect Canada to enter a mild recession this year.

While there is no evidence of a recession yet, there are signs that high interest rates and inflation are weighing on companies and consumers.

This week, the Bank of Canada released surveys on business outlook and consumer expectations, showing that companies are losing confidence and Canadians are cutting spending to make up for the bills. necessities are expanding.

At the same time, inflation expectations remain relatively high in surveys.

The story continues below the ad

“That suggests, in essence, the bank might want to tighten up a little bit more in the near term,” Mendes said.

&copy 2023 Canadian Press

news5s

News5s: Update the world's latest breaking news online of the day, breaking news, politics, society today, international mainstream news .Updated news 24/7: Entertainment, Sports...at the World everyday world. Hot news, images, video clips that are updated quickly and reliably

Related Articles

Back to top button