As expected the Bank of Canada has, once again, raised its trendsetting interest rate and there are more hikes to come.
Last week’s setting was the third straight increase and the second 50 basis point boost in a row, bringing the Bank’s policy rate to 1.50%. Now the speculation has turned to how big subsequent increases will be.
The central bank has made no secret of its concerns about inflation and it admits it made mistakes in its previous forecasts. In the statement that came with the last setting the BoC became even more hawkish, saying it is willing to step up its attack on inflation.
“The Governing Council is prepared to act more forcefully if needed to meet its commitment to achieve the 2% inflation target,” the Bank said.
“The risk of elevated inflation becoming entrenched has risen”, it also said. “Interest rates will need to rise further.”
It is the “more forcefully” that now has some market watchers talking about the distinct possibility of a 75 basis point rate hike in July or September.
There is also some speculation the Bank could push its benchmark rate to 2.0% and then pause. Given Canadian’s high level of indebtedness and the economy’s sensitivity to interest increases the Bank has to be cautious about not triggering a recession.
Inflation is running at generational highs in Canada: 6.8% in April. Analysts predict it could top 7.0% in May.