Experts predict that the Bank of Canada is likely to announce another significant rise in interest rates on Wednesday as it tries to curb rampant inflation.
After keeping its key interest rate close to zero since March 2020, the central bank reported a couple of rate hikes in March and April; the second was half a percentage point, the highest in 22 years.
The day-to-day rate is expected to rise another half percentage point to 1.5 percent this week, “with more likely increases in the coming months,” said Nathan Janzen, chief economist at the Royal Bank of Canada.
The moves mark an effort to fight inflation, which is going at its fastest pace since the early 1990s.
Experts also say that robust economic growth and unemployment at lows of several decades leave room for the slowdown pointed out by the Governing Council of the Bank of Canada.
Stephen Tapp, chief economist at the Canadian Chamber of Commerce, says a new survey shows that rising input costs are among the biggest hurdles companies face, leading to rising prices and an urgent need. to keep interest rates up.
“These cost pressures will continue to fuel inflation, which will add more pressure for the Bank of Canada to continue to raise interest rates at a very fast pace in its attempt to control inflation,” it said in a statement on Monday.
Canada’s consumer price index rose 6.8 per cent in April from a year earlier, Statistics Canada reported earlier this month. Groceries rose 9.7%, the largest increase since September 1981, while gasoline prices rose 36.3% year-on-year.
“Canadian inflation is working more than three times faster than the target,” Desjardins macro strategy chief Royce Mendes wrote in a note to clients on Monday.
“In fact, with the political rate still low, something bigger than a 50 basis point increase could have been justified. However, officials have already stated that, for reasons that are not clear, an increase of 75 basis points. “Walking is a bridge too far for them.”
The higher benchmark interest rate has already caused large Canadian banks to raise their preferred rates, a change that will increase the cost of benchmark-linked loans, including floating rate mortgages.
Starting last month, Canada’s six largest banks – RBC, TD Bank, CIBC, BMO, Scotiabank and National Bank – said they would increase their preferred rates by half a percentage point to 3.20% from 2.70 %.
This report from The Canadian Press was first published on May 30, 2022.