BoC increases rate to 4.25%, while hinting end may be near

BoC inreases rate to 4.25%, while hinting end may be near

In this morning's rate announcement, Canada's central bank raised its key interest rate by 50 points, to 4.25 per cent. The hike was widely expected by economists. The Bank of Canada's interest rate now sits at its highest level since 2008.

The Bank of Canada has increased its rate seven times of this year, in its battle with inflation. Over the course of the year, the rate has progressed from 0.25 per cent to 4.25 per cent.

This has impacted the rates available to Canadian households and businesses in regards to saving accounts and mortgages.

In the previous rate hike announcements, the BoC indicated it would sustain its rate hike cycle until inflation returned to its preferred range of up to three per cent. But today's announcement had a different sentiment, hinting at a more neutral approach going forward.

“Looking ahead, Governing Council will be considering whether the policy interest rate needs to rise further to bring supply and demand back into balance and return inflation to target,” stated the bank.

"Governing Council continues to assess how tighter monetary policy is working to slow demand, how supply challenges are resolving, and how inflation and inflation expectations are responding.”

Chief Economist at CIBC, Avery Shenfeld noted the BoC's language change to clients this morning. “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,” said Shenfeld.

While Shenfeld expects the Bank of Canada to hold its rate for the next year, some of his colleagues at Canada's other major banks are forecasting something different. BMO Chief Economist Doug Porter said in a client note this morning that he expects the BoC will roll out a 25 basis point increase in its next rate decision in January.

James Orlando, senior economist at TD, shared the same sentiment. He believes a final quarter point increase will allow the BoC to sit back and wait for the delayed effects of its rate hike to materialize. “At that time, it can move to the sidelines, allowing the economy to recalibrate and let inflation continue its downward trend over 2023,” he told clients this morning.