The Bank of Canada raised its benchmark overnight interest rate by 50 basis points (bps) yesterday, to the highest level in almost 15 years, signaling that its unprecedented tightening campaign is coming to an end.
The central bank has raised its rates at a record pace of 400 bp in nine months to 4.25%, to combat inflation of 6.9% per year, well above the 2 percent target.
The bank cited still-strong growth and a tight job market as arguments for the latest increase.
Although the tightening cycle is likely to have reached its zenith, we will need the pain of high rates to linger for a while to slow economic growth and therefore cool inflation,” said Avery Shenfeld, chief economist at CIBC Capital. markets.
Markets were betting on a 25bp rise, however a slim majority of economists polled by Reuters expected a 50bp rise.
Gross Domestic Product growth in the third quarter (2.9% annualized) was higher than expected and excess demand still remains, while labor markets remain tense, according to the bank.
However, the central bank said the data supports its October forecast that growth will stall by the middle of next year.
“Looking ahead, the Governing Council will consider whether the official interest rate should be increased further to rebalance supply and demand and return inflation to target,” the central bank emphasized in a statement.
The BoE will raise them to 3.5%
For its part, at its meeting next week the Bank of England (BoE) seems set to raise interest rates to 3.5% or more, but politicians seem increasingly divided on how much adjustment to take. You need to control double-digit inflation as the economy heads into recession.
Last month, BoE Governor Andrew Bailey said more rate hikes may be needed, albeit less than what financial markets had priced in before that meeting, when they were betting rates would hit 5.25% by mid-month. of 2023.
Two members voted against the three-quarter point increase in November.
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