Bank of Canada: In the past year and a half, the Bank of Canada has expeditiously increased interest rates to 5%, from a nadir of 0.25% in March 2022.
Numerous economists have forecasted that the rate-hiking cycle may be nearing its conclusion due to the current downward trend in inflation and indications of economic deceleration; however, the Bank of Canada has not ruled out further rate hikes and has not specified when it will reduce interest rates.
The majority of economists anticipate that the central bank will maintain interest rates at 5% at its rate decision on Wednesday. The following is a chronology of the rate decisions that led to this point.
March 2, 2022: Following two years of maintaining its overnight lending rate at 0.25 percent amidst the COVID-19 pandemic, the Bank of Canada increased interest rates by 25 basis points to 0.50 percent on March 2, 2022. The impetus for the decision to increase interest rates originated from escalating inflation resulting from escalated oil and commodity costs associated with the abrupt incursion of Russia into Ukraine.
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April 13, 2022: The overnight lending rate was increased by 50 basis points, to one percent. The announcement that the Bank of Canada would soon commence quantitative tightening – that is, selling or allowing its government bond holdings to mature – accompanied this rate hike, thereby reducing the amount of money available to the financial markets. Concurrently, the Russia-Ukraine conflict escalated, which contributed to a surge in inflation via heightened energy costs.
June 1, 2022: A 50-basis-point increase resulted in a 1.50 percent increase in the overnight lending rate. The decision was made in response to Canadian inflation reaching 6.8 percent in April, which is significantly higher than the target rate set by the Bank of Canada. As a result of rising food and energy prices, in addition to excessive demand in the Canadian economy, the central bank anticipated that inflation would increase even more.
July 13, 2022: The Bank of Canada increased interest rates by 100 basis points to 2.50% on July 13, 2022, marking the most substantial single rate increase in over two decades. Inflation is anticipated to hover around eight percent for the next several months, according to the central bank.
Sept. 7, 2022: By increasing the overnight lending rate by 75 basis points, the Bank of Canada now charges 3.25 percent. Additionally, the central bank maintained its quantitative tightening initiatives. As Canadian businesses struggled with labor shortages, geopolitical tensions, weakened Chinese demand, and a tight labour market would continue to fuel inflation, according to the report. In addition, it cautioned that additional rate hikes would be necessary because inflation remained above the target at 7.6%.
October 26, 2022: The overnight lending rate was increased by an additional 50 basis points by the Bank of Canada on October 26, 2022, to 3.75 percent. According to the central bank, the demand for goods and services in Canada exceeded the available supply, thereby exerting an upward trend on domestic inflation. Despite the fact that inflation continued to endure, the central bank acknowledged that its recent series of interest rate increases were starting to manifest in the declining housing market and a slowdown in both household and business expenditures.
December 7, 2022: The overnight lending rate increased by an additional 50 basis points on December 7, 2022, to 4.25 percent, the highest level since January 2008. Canada’s near-historic low unemployment and a third-quarter gross domestic product that outperformed expectations were cited by the Bank of Canada as two indicators that would sustain elevated inflation levels through 2023.
January 25, 2023: The Bank of Canada increased its overnight lending rate by an additional 25 basis points on January 25, 2023, bringing it to 4.50 percent. This increase was more modest in scale compared to prior rate hikes, as the central bank reported a global decline in inflation. Nevertheless, inflation in December 2022 stood at 6.3 percent, which was nowhere near the target rate of 2.0 percent set by the Bank of Canada.
March 8, 2023: A moment of pause finally arrived for the Canadian interest rate environment on March 8, 2023. The Bank of Canada maintained its overnight lending rate at 4.50% in an effort to maintain interest rates at a hold. The Canadian economy stalled in the fourth quarter of last year, the central bank reported, which was weaker than anticipated. It projected that the deceleration of economic growth would persist in the forthcoming quarters, resulting in an alleviation of inflationary pressures.
April 12, 2023: The Bank of Canada adopted a cautious stance on April 12, 2023, maintaining interest rates at 4.50 percent once more.
June 7, 2023: The Bank of Canada increased its overnight lending rate by 25 basis points to 4.75 percent, following two consecutive pauses. The action was primarily motivated by an increase in inflation to 4.4%, the first such rise in ten months, and by economic growth in the first quarter of the year that surpassed expectations. Additionally, the bank was wary of a surge in housing market activity.
July 12, 2023: An additional increase of 25 basis points raised the overnight lending rate of the bank to five percent on July 12, 2023. As risks for further inflation, the Bank of Canada cited the tight labor market and increased housing market activity.
September 6, 2023: The Bank of Canada maintained the overnight lending rate at 5% on September 6, 2023. The central bank indicated a general deceleration in inflation, albeit with a resurgence to 3.3 percent in July. In addition, it stated that there were indications that the economy’s excess demand was diminishing. The central bank stated it would not hesitate to raise interest rates once more if required, notwithstanding these trends.
October 25, 2023: The Bank of Canada will announce its subsequent interest rate determination on October 25, 2023. Economists are predicting a rate hold in response to last month’s inflation reading of 3.8%, which was below expectations of 4%.
