Another 50-basis point hike might be in the cards
With the 6.7% annual inflation rate in March surging far beyond experts’ predictions, the likelihood of another large hike in the Bank of Canada’s next interest rate announcement has increased, according to Andrew Grantham of CIBC Capital Markets.
“Inflation continues to run well ahead of expectations from earlier in the year, linked not just to commodity price spikes but also to stronger underlying price pressures as well,” Grantham said.
“The upside surprise is likely to bring another non-standard 50-basis point hike from the Bank of Canada at its next meeting.”
Moreover, any easing in inflation levels over the next few months will likely be “fairly gradual” due to global supply-chain disruptions and simmering geopolitical tensions.
“A more meaningful deceleration in inflationary pressure will likely wait until the second half of this year and into 2023,” Grantham projected.
Read more: Rising rate environment: What should clients keep top of mind?
Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets, told Reuters that as the BoC moves closer towards the neutral rate (2% to 3%), the risk of a sharp economic downturn becomes more apparent. The central bank has not hiked above this neutral level since at least 2008.
“It may be a little bit harder to dock the boat, so to speak, than it has been over the last 10 years,” Anderson said. “There are a lot of forces out there that are contributing to inflation and some of them may not be that temporary.”
