Bank of Canada’s interest rate hike is likely to be the first for many, analysts say

Analysts say the Bank of Canada’s gradual rate hike on March 2 has little effect on stopping inflation.

The BoC’s rise of 0.25 basis points to stop rising inflation brought interest rates to 0.5 percent. Analysts were widely expecting this increase, even though it was earlier than the mid-2022 date that banks advertised throughout 2021.

“As the economy continues to expand and inflationary pressures continue to rise, the Board expects interest rates to rise further,” the central bank said on March 2. Press release Announced rate hike.

Steve Ambler, a former professor of economics at the University of Quebec in Montreal, said it was clear that rising inflation was not a temporary “temporary” phenomenon.

“It’s gradually being recognized or recognized that people and banks themselves have made all the wrong predictions about how high inflation will be and how long it will last,” Ambler said in an interview. Said.

Canada’s annual inflation fell in April and May 2020 due to a pandemic, but has been well above the normal 3% cap since April 2021. Inflation rate in January 2022 was 5.1%, High for the first time in 30 years..Central banks have interest rates First half 5% By the end of the year it will drop to about 3 percent.

BoC has six more scheduled dates for 2022 interest rate announcements. April 13.. More hikes are expected on all or part of these dates, but speculation about how fast, how high, and how long these increases will last is “very controversial.” Says Ambler.

A Reuters poll Of the 25 economists conducted February 17-23, banks unanimously expressed their unanimous belief on March 2 to raise interest rates by 0.25 basis points to 0.5%. Median forecasts show that banks will increase another 0.5 basis points to 1% by mid-year and another 0.25 basis points to reach 1.25% by the end of the year.

“That would be a sign of a fairly dovish Canadian bank at this point, as high inflation began to exceed expectations,” Ambler said in a forecast.

Prepare wisely For higher rates

In January, Bank Nova Scotia predicted that Canada would have an interest rate of 2% by the end of the year. This is the only analysis that made such a high prediction. CD Howe CEO William Robson predicts that interest rate hikes will reach 3 percent in 2023 to catch up with inflation.

“Until at least 2023, few predictors and investors seem to expect overnight interest rates above 2%, but Canadians are wise to prepare for overnight interest rates above 3%. Probably, “Robson wrote. February 28 Briefing..

“If the World Bank’s core indicator is a good indicator of inflation expectations, then if the real interest rate is zero, we now need an overnight interest rate of 3%, which is higher than most observers expect. February, 3 If the CPI exceeds expectations again in the month and beyond, the final next day prices could be even higher. “

Ambler says Canada needs to keep up with the Fed’s interest rates. Otherwise, the Canadian dollar will fall and imports will be more expensive.

“If the Fed runs 50 basis points [increase] Two weeks after the Bank of Canada did 25, we know that the Bank of Canada could catch up, “he said.

“My guess is that they [the Fed] Was seriously considering raising 50 basis points, but the situation in Ukraine took it off the table due to heightened uncertainty due to geopolitics. “

In a press release on March 2, the BoC pointed out Russia’s invasion of Ukraine as “a major source of new uncertainty.”

“Prices on oil and other commodities have skyrocketed. This will increase inflation around the world, which can negatively impact self-confidence and disrupt new supply, putting pressure on global growth. It’s growing. “

Philip Cross, a senior researcher at the McDonald’s Laurier Institute, told the Epoch Times that he had already expected a rate hike “at every opportunity this year” before the invasion of Ukraine. He believes that moderate rate hikes cannot stop the momentum, further raising oil prices, which are already high in commodity prices and supply chain impacts.

“As we are used to zero interest rates in this country, do you think it will be affected by a quarter point rise? A joke? The housing market that is just collapsing in this country It will take a few quarters increase to have a measurable impact on something like that, “he said.

“In the past, often with very small initial interest rate hikes, people have come down the fence and say,” Boy, you should buy now before interest rates rise further. ” So this won’t have a big impact on the economy. “

Select oil in western Canada is $ 89.31 per barrel as of the morning of March 2, but Cross is expected to skyrocket above $ 100. He shows that Alberta’s expectations for a balanced budget this year show that oil and gas “powers” are driving the Canadian economy more and more, and even the high-end forecast for a 2022 rate hike is small. It states that it suggests that it is too much.

“For me, 2 percent is ridiculous. Normal interest rates are like 3-4 percent. Even just returning to 2 percent, the monitoring policy remains loose. I think we should do it here. It’s really torn between that and what the Bank of Canada wants to do, “he said.

“The bigger damage that could do to the economy is just to sit down and disrupt inflation. In my opinion, the more pressure the public has on inflation, the more the Bank of Canada must take action. . “

Lee Harding


Lee Harding is a Saskatchewan-based journalist and think tank researcher and contributor to The Epoch Times.