The Bank of Canada (BoC) has raised interest rates this Wednesday to 4.5%, a quarter of a percentage point (25 basis points) more than the previous level, in line with forecasts. But the great novelty is that the monetary authority chaired by Tiff Macklem ensures that it stands up and sends the message that investors had been waiting for after almost a year raising rates continuously and aggressively as in other countries.
“With today’s modest increase, we expect to pause rate hikes while we assess the impacts of the substantial tightening of monetary policy already undertaken. To be clear, this is a conditional pause: it is conditional on economic developments evolving largely in our perspective line. If we need to do more to bring inflation to the 2% target, we will do it,” says the central bank that has led the Fed and the ECB with rates.
What economic conditions must exist for that to happen? The main one is that inflation maintains its descending line in recent months. The BoC estimates that the world economy grew by around 3.5% in 2022 and will slow to around 2% in 2023 and 2.5% in 2024. For Canada, its forecast is somewhat more pessimistic. “We expect growth in Canada to stop in the middle of this year before picking up later in the year. 1% in 2023 and 2% in 2024,” he says.
The key message: road to victory against inflation
Macklem has focused on a part of his speech so that there are no misunderstandings. In this sense, the governor of the Canadian dollar assures that the decrease in inflation since the summer is a “welcome relief” for many Canadians who deal daily with the increase in the cost of living. “But at more than 6%, inflation is still too high,” he says.
The Bank of Canada was one of the first in the world to launch a monetary policy offensive with high inflation running rampant in early 2022. The bank responded forcefully by raising its interest rate from 0.25% a year ago to 4.50 % current, that is, 425 basic points of escalation that mark a record in its policy.
“It’s working. We’re turning the corner on inflation,” Macklem said. We are still a long way from our target, but recent events have strengthened our confidence that inflation is coming down. And we are committed to getting inflation back to 2%, so Canadians can once again count on low, stable and predictable inflation alongside a sustainable economy.”
