We’ve come a long way since the 8.1% inflation rate seen in June (a near four-decade high), but if you ask the Bank of Canada (BoC), the economy still has some way to go.
Driving the news: The BoC hiked its base interest rate by half of a percentage point (to 4.25%). Another hike was guaranteed thanks to strong US economic data and inflation holding steady at 6.9% in Canada, but financial markets had anticipated a 0.25-point bump.
- The BoC took a softer tone about future hikes, however, shifting from past assertions that increases were “expected” to come, to say it would be now “considering” them.
Why it matters: Canadian interest rates are sitting at their highest level since 2008, but our central bank is the first of the G10 to indicate it’s ready to press pause on future hikes.
- There is growing evidence that high interest rates are starting to cool demand and the BoC expects it to slow even more through to the end of the year and into 2023.
- Canada’s economy grew faster than expected last quarter, but household spending has dropped and home prices fell for the eighth straight month in November.
Zoom out: The BoC was early out of the gate in tightening monetary policy and might be early to suspend its rate-hiking campaign. If the US Federal Reserve follows suit next week, it’ll be a signal to the rest of the world’s central banks that it’s time to change course, too.