Bank of Canada Raises Rates 100 Basis Point in Largest Increase Since 1998

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    Bank of Canada’s Paul Beaudry speaking after Bank of Canada rate hike of a 50 basis points yesterday

    increasing likelihood that it may need to raise policy rates to 3% or higher
    risk is now greater that inflation expectations could be de-anchored and the high inflation could become entrenched
    in deliberations ahead of June 1 high, bank noted price pressures are broadening and inflation likely to go higher still before easing
    bank must be – and will be – resolute in bringing inflation back down; we will prevent high inflation from becoming entrenched
    we expect strong growth and low unemployment to continue; our interest rate increases will take time to have their full impact Canadian economy is moving further into excess demand; economic rebound has been much faster than the bank anticipated
    the more significant of the two forces driving Canadian inflation is largely international and is more complicated for monetary policy to tackle
    normally, inflationary shocks links to external supply disruptions don’t persist for long, so BOC typically did not react to such shocks
    Bank opted against raising rates in 2021 because of what it saw as a temporary inflationary shocks from abroad and because economy was operating well below capacity for most of the year
    Bank also chose not to raise rates in 2021 because premature tightening could have made it harder for people who lost jobs during pandemic to find work
    The risk of leaving rates low was that higher inflation could start to become entrenched; the risk seemed appropriate at the time given slack in economy
    in July, bank will provide an initial analysis of its inflation forecast errors


    The USDCAD moved to a new low for the week and trades at the lowest level since April 22.

    The pair is in a swing area between 1.2587 and 1.2626. Move below and the sellers add to their bias strength.

    Helmholtz Watson

    Bank of Canada raised overnights rate by a higher-than-expected full percentage point from 1.5% to 2.5%, the market was anticipating 75 basis points.
    [See the full post at: Bank of Canada Raises Rates 100 Basis Point in Largest Increase Since 1998]

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