To counter inflation that "remains high and widespread", the Bank of Canada raised its key rate by 50 percentage points, from 3.25% to 3.75%. The Bank of Canada surprised analysts with an increase in its key rate of only 50 percentage points, from 3.25% to 3.75%. If further increases are yet to come, this could well mark a “pivot” in its approach.
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Most observers were expecting an increase of 75 percentage points instead, which led a Desjardins economist to say that the Bank is beginning to see the effect of its previous increases.
“The signal that the Bank sends is that it recognizes that its increases have an effect and it recognizes that the risks of its increases are growing,” explains Lorenzo Tessier-Moreau.
We only have to look at the real estate market to understand it. “We had several months of falling prices, resale fell sharply during the summer,” he observes.
Reduction of rhythm
The Bank still mentioned Wednesday morning that there were still “some” rate hikes to come. The next one is scheduled for December 7 and the next on January 25, 2023.
Its inflation expectations also remain high, with a forecast of 2.8% for the end of 2023, which is above its target of 2%.
In short, his message is that the work is not finished, analyzes Lorenzo Tessier-Moreau.
We note all the same, he says, that the Bank of Canada is one of the first central banks to “start a reduction in the rhythm of its increases”.
Is this the beginning of a pivot on its part and that of other institutions, such as the Fed in the United States?
That remains to be seen. That said, it is undeniable that we are approaching the ceiling, and everything will depend on the speed with which the recession takes hold.
If, as Desjardins predicts, Canada enters a recession in January, the Bank of Canada's key rate could stabilize, explains the economist.
