The Bank of Canada “unpauses”—what’s next?
By Frances Donald, Global Chief Economist and Strategist, Multi-Asset Solutions Team - Manulife Investment Management
The Bank of Canada (BoC) has “unpaused” and effectively restarted its tightening cycle by increasing interest rates by another 25bps and signaling there might still be more hikes ahead. The BoC has now hiked by 450bps in less than 18 months—one of the most aggressive hiking cycles in Canada’s modern economic history.
The central bank meets again on July 12th, and unless some data or event surprises, we can’t rule out another rate hike. Going forward, it’s likely the BoC will still have concerns that “CPI inflation could get stuck materially above the 2% target” and that “monetary policy [is] not sufficiently restrictive to bring supply and demand back into balance and return inflation sustainably to the 2% target.”
Given the time it takes for monetary policy changes to work their way through the economy and the fact that the policy rate already stands significantly above its neutral rate, the critical question, in our view, isn’t whether the Bank of Canada hikes one more time or not..
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