One more large rate increase from the Bank of Canada

Today, the Bank of Canada has announced one more overnight rate increase of 0.50%. As a result, the rate has exceeded the 4% threshold for the first time since 2008.

The Bank’s increase (the seventh in a row) has pushed the policy rate to 4.25%, which is 4% higher than where it was at the beginning of the year. The decision didn’t come as a surprise. The only uncertainty about that was whether it would be a 0.50% or a 0.25% hike.

According to the central bank’s official statement, it will be considering whether the key lending rate needs to go up higher. It’s a sharp shift from the aggressive tone we’ve seen in previous months when the Bank pointed to more rate increases.

This change is also the Bank’s sixth “oversized” (by more than 0.25%) hike in a row. Such an aggressive approach reflects its ongoing worries about inflation which is still well above the Bank’s target of 2%.

In October, Canada’s inflation rate was unchanged compared to the previous month (6.9%), and BoC Governor Tiff Macklem had made it clear that one more hike is coming in December as he tries to restrain the skyrocketing annual price growth.

During his speech two weeks ago, Macklem pointed to the economic difficulties the Bank keeps facing in terms of tackling the inflation crisis.

“If we don’t take enough measures, Canadians will keep suffering from high inflation. If we do too much, we may slow the economy more than necessary,” – he explained.

According to markets, the central bank is coming closer to the end of its rate-hiking cycle. The terminal point is expected to be slightly above 4%, remaining on that level throughout 2023.

The Bank’s next rate meeting is scheduled for January 25.