The Bank of Canada blinks in the battle against inflation: what economists say

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The Bank of Canada surprised markets with a 50 basis point hike in its Oct. 26 rate decision, a move smaller than the 75 basis point hike that many economists were anticipating. Its trend key rate now stands at 3.75%.

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The Bank acknowledged that although inflation had not peaked, it was still too high. In the accompanying monetary policy report, the central bank now expects inflation to fall to 3% by the end of 2023 before returning to the 2% target by 2024.

Here’s what economists are saying about the surprise move:

Royce Mendes, Managing Director and Head of Macro Strategy at Desjardins

“In the Bank of Canada’s chicken game with inflation, central bankers were the first to swerve… The fact that core inflation has not slowed, inflation expectations remain high, and that demand always exceeds supply, the Bank could easily have justified a higher rate. hike. That said, the risk of such an aggressive move seemingly outweighed the reward.

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“As we have long said, the Canadian central bank needed to pivot before its US counterpart due to the interest rate sensitivity of the Canadian economy. While the statement leaves the door open to the possibility of another 50 basis point move in December, the expected economic underperformance will likely limit the next hike to just 25 basis points.”

Andrew Grantham, Senior Economist, CIBC Capital Markets

“The Bank of Canada continued to raise interest rates in an effort to control inflation, although the 50 basis point move to raise the overnight rate to 3.75% was a little less aggressive than the consensus and the market had expected. (75 basis points have been almost fully integrated). The statement and the downgraded growth forecast as part of the RPM hints at an economy losing momentum perhaps a little faster than expected.

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“However, even with a weaker growth profile, the Bank said its preferred measures of inflation did not yet show significant signs of easing, and as such the statement still suggested that inflation rates interest ‘should increase further.’ As such, this may simply represent a slightly slower path to the same maximum interest rate (4.25%). than we expected before today’s 50 basis point weaker than expected rise.

Stephen Tapp, Chief Economist, Canadian Chamber of Commerce

“I expect markets to move quickly today to price in a Bank of Canada hikes 25 basis points in Decemberwhich would bring the key rate to 4%, in which case the Bank could take a breather and wait to see if core inflation and expected inflation move closer to the 2% target.

• Email: shughes@postmedia.com | Twitter: StephHughes95

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