Bank of Canada may follow U.S. and also raise its overnight rate by 0.75% in July
On Wednesday, the U.S. Federal Reserve raised its key lending rate by 0.75%, marking the largest hike since 1994 and increasing the odds of the same decision from the Bank of Canada in July.
The U.S. bank’s move pushed the country’s benchmark rate to a 1.5-1.75% range in attempt to restrain the skyrocketing inflation.
Although the central bank has already moved its key lending rate to 1.5%, the governor Tiff Macklem has hinted he is ready to act “more forcefully.”
According to Josh Nye, a senior economist with RBC Economics, now there are more chances that Macklem will mirror the Fed.
“One of the main arguments against the Bank’s aggressive hikes was the fact that the Fed wasn’t expected to act this way. However, it was before the Fed’s latest move,” – he explained.
“Earlier, it was generally seen as reducing the odds that the BoC could try a larger increase, but with the Fed now moving with a 0.75% hike, the chances are going up.”
When people started predicting a larger rate increase in the U.S., Nye said he saw odds for the next two Bank of Canada meetings moving up too. In addition to it, the bond yields began to grow.
CIBC economists Avery Shenfeld and Andrew Grantham support this forecast.
In their opinion, the BoC will raise its overnight rate to 2.75% in 2022. After that, slowing growth and weaker inflation will make the Bank postpone further hikes.
Nye also expects the rate to go up to 2.75% this year. However, in case the inflation doesn’t slow down, an increase to 3% is possible.