Economists don't believe the Bank of Canada is ready to hit the brakes on its interest rate-hiking cycle just yet, even as signs grow that inflation is easing and the economy is softening.
Canada's central bank is expected to announce its eighth consecutive rate increase on Wednesday, with most commercial banks forecasting a raise of a quarter-percentage point. That would bring the central bank's key interest rate to 4.5 per cent, the highest it's been since 2007.
The Bank of Canada is likely encouraged that headline inflation is slowing. After peaking at 8.1 per cent in the summer, the annual inflation rate has cooled to 6.3 per cent in December. Mendes said although he also expects this to be the last raise for now, Canadians shouldn't be too confident that interest rates won't rise further.
Orlando expects the Bank of Canada to say it doesn't foresee the need for more rate hikes, but that it will keep monitoring how economic conditions evolve. That way, the door is open for further rate hikes if necessary, he said.Since March, the Bank of Canada has embarked on one of the fastest rate-hiking cycles in its history. After slashing interest rates to near zero during the pandemic to stimulate a plummeting economy, in 2022 it hiked rates rapidly to clamp down on skyrocketing prices.
That means the full brunt of interest rate hikes has yet to be felt. Mendes said the Bank of Canada is trying to balance the risks of raising rates by too much or too little.The Bank of Canada will also release its quarterly monetary policy report on Wednesday, which will provide updated forecasts for economic growth and inflation.
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