Hike marks the first time since 2008 that the policy rate has hit or surpassed 4%
The Bank of Canada has made another 50-basis-point hike to its benchmark rate in its final scheduled policy rate announcement of the year, marking the first time that rate has hit or surpassed 4% since 2008.
The central bank’s latest hike – its seventh consecutive rate jump of the year – means the policy rate now sits at 4.25%, having spiked by a full four percentage points throughout 2022. The move was widely anticipated, with uncertainty only arising among market observers over whether the Bank would introduce a 25-basis-point or half-percentage-point hike.
The Bank said in its statement accompanying the hike that it “will be considering whether the policy interest rate needs to rise further,” a departure from hawkish language in previous months indicating that further rate jumps were definitely in the cards.
Today’s rate increase is also the Bank’s sixth so-called “oversized” (more than a quarter-point) hike in a row, with that aggressive approach reflecting its continuing concern over inflation that remains well above the central bank’s target level of 2%.
Canada’s inflation rate remained unchanged in October from the previous month at 6.9%, and Bank of Canada governor Tiff Macklem had signalled that another rate increase in December was all but a certainty as it bids to temper rampant yearly price growth.
Speaking to the parliamentary finance committee two weeks ago, Macklem indicated the economic tightrope that the Bank continues to walk on Canada’s inflation crisis.
“If we don’t do enough, Canadians will continue to endure the hardship of high inflation… If we do too much, we could slow the economy more than needed,” he said.
Markets believe that the Bank is nearing the end of its rate-hiking trajectory, with the expectation that its terminal point will land slightly above 4% and sit there throughout next year.
The Bank will make the first of its eight scheduled 2023 policy rate announcements on January 25.
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