TORONTO — The Bank of Canada on Wednesday hiked its benchmark overnight interest rate by 50 basis points to 4.25%, the highest level in almost 15 years, and signaled the tightening campaign was near an end.
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MARKET REACTION: CAD/
LINK:https://www.bankofcanada.ca/core-functions/monetary-policy/key-interest-rate/
ROYCE MENDES, DIRECTOR & HEAD OF MACRO STRATEGY AT DESJARDINS
“The Bank of Canada used its hammer once again today to raise the policy rate another 50 basis points to 4.25%. In doing so they acknowledged that domestic demand has been waning and that three-month annualized rates of core inflation have fallen further. Still, they continued to worry about inflation becoming entrenched and that’s what this rate hike really about.”
“For today’s rate announcement, the size of the hike is more hawkish than what was anticipated. That said, markets are digesting this information within the context of a potential pause in January. As a result, while rates have risen across the curve, the moves aren’t dramatic.”
AVERY SHENFELD, CHIEF ECONOMIST AT CIBC CAPITAL MARKETS
“The Bank of Canada flashed a yellow card on its rate hiking team, by sounding more cautious about its willingness to press on to even higher interest rates in 2023 even as it tightened today.”
“We still see the overnight rate plateauing at this 4.25% level, but unlike what financial markets have been presuming in the last couple of weeks as bond yields tumbled, we expect the Bank of Canada to keep the overnight rate there through 2023 and ease only gradually in 2024.”
“While the tightening cycle likely has reached its zenith, we’ll need the pain of these higher rates to persist for a while to stall economic growth and thereby cool inflation.”
STEPHEN BROWN, SENIOR CANADA ECONOMIST, CAPITAL ECONOMICS
“The Bank of Canada delivered a somewhat dovish 50 basis point policy rate hike today by softening its explicit forward guidance that interest rates will need to rise further. We would not rule out a final 25 basis point interest rate hike in January, but the Bank is very close to the end of its tightening cycle.”
“For now, we assume that the resilience of the labor market and a desire not to send too dovish a message will cause the Bank to enact one final 25 basis point hike in January. But with Canadian oil prices tumbling below $50 in recent days, almost 40% lower than the Bank assumed in its October Monetary Policy Report, it would not be a complete surprise if today marks the last hike in this cycle.”
DARCY BRIGGS, PORTFOLIO MANAGER, FRANKLIN TEMPLETON CANADA
“It was always a coin flip.”
“It looks like markets have taken it a little more hawkish than expected but our take is we’re in the last throes of the rate tightening cycle and moving pretty close to a hold.” (Reporting by Fergal Smith Editing by Denny Thomas)
