The Bank of Canada raised interest rates by 50 basis points as expected and signaled that the current tightening cycle is coming to an end
News from the Financial Associated Press on December 8 (Editor Zhao Hao)On Wednesday (December 7), local time, the Bank of Canada announced the seventh interest rate hike this year, raising the central bank interest rate by 50 basis points from 3.75% to 4.25%, in line with market expectations.
The rate hike brought the Bank of Canada’s interest rate to its highest level since December 2007. The bank also announced that it will continue to reduce the size of its balance sheet in line with the policy of raising interest rates to further ease inflationary pressures.
The statement reads that the Monetary Policy Committee will begin to consider whether further interest rate increases will be required in the future. It is completely different from the “hawks” line of the previous interest rate meeting.
According to media analysis, these words indicate that officials of the bank are considering the need to continue raising interest rates, which means that the cycle of raising interest rates is drawing to a close.
Canadian Imperial Bank of Commerce chief economist Avery Shenfeld wrote that while interest rates in Canada may be close to their peak, they still need to endure the pain of high interest rates for a while.
Fears of economic recession “throwing rats”
In the central bank’s statement, high inflation remains its most concerned topic. The Bank of Canada reiterated its commitment to reducing the inflation rate to 2%, and pointed out that the current inflation rate and short-term inflation expectations are still too high.
According to the latest data, the year-on-year growth rate of Canada’s consumer price index (CPI) in October remained at 6.9%, and the core CPI remained at around 5%, both exceeding the central bank’s target by 2 to 3 times. Prices of goods and services that many Canadians buy regularly have risen sharply, and short-term inflation expectations are still rising.
(Source: Bank of Canada’s official website) While the Bank of Canada once more pointed to the risk that “short-term inflation expectations might entrench inflation,” the bank said there were early signs of easing price pressures.
At the same time, the Bank of Canada also admitted that more and more evidence shows that the tightening monetary policy is “repressing domestic demand”. In the third quarter, Canadian consumption slowed down, real estate activities declined, and economic growth at the end of this year and the first half of next year basically stagnated.
This week, the yield curve on Canadian government bonds inverted the most in nearly 30 years. This phenomenon often indicates that a country’s economy will fall into or is already in recession.
