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Bank of Canada hikes rates, becomes first major central bank to signal pause

By Steve Scherer and David Ljunggren

OTTAWA (Reuters) – The Bank of Canada raised its key interest rate to 4.5% on Wednesday, the highest since and became the first major central bank to combat global inflation to say it may hold off on further interest rate hikes for now.

25 – The basis point rise was in line with analysts’ expectations. The bank raised interest rates at a record rate of 25 basis points in 10 months to curb the already Inflation, which peaked at 8.1 percent, eased to 6.3 percent in December, still more than three times the 2 percent target. “We are still a long way from our goal, but recent developments have strengthened our confidence that inflation is on the way down.”

Canada’s approach has matched that of the Fed until now Matching, the latter gradually raised its own target policy rate by 4.10 percentage points from the previous year. The Fed will slow down the rate hike pace from January25 to February. 1 policy meeting and signaled its battle with inflation is far from over.

Royce Mendes, director and head of macro strategy at Desjardins, said Macklem and his team would keep rates on hold for at least the next few months.

“As such, we expect this to be the last rate hike of the cycle,” he said.

Macklem said the bank wanted to take time to see how effective the rapid rate hikes were in curbing excess demand and an overheating labor market that was driving inflation.

“To be clear, this is a conditional pause,” he said, noting upside risks to the outlook. “Should these upside risks materialize, we are prepared to raise interest rates further.”

In its quarterly Monetary Policy Report (MPR), which includes new forecasts, the bank paints a picture of the economy: A stagnation and possible recession in the first half of the year has brought inflation down to around 3% by mid-year and back to 2% in 425.


The central bank said in December that future interest rate decisions would be data dependent, with the December jobs report released earlier this month highlighting the upside risks to wage and price growth.

Money markets have actually seen the Bank of Canada cut rates already in October, but Macklem thinks the talk of a rate cut is premature.

‘Too soon to cut rates’

“It’s too early to talk about cutting,” McCollum said. “The pause is really to give us time to assess whether we have raised rates enough to get inflation all the way back to target.”

Lower inflation could also provide some relief Liberal government. The main opposition Conservative Party has accused Prime Minister Justin Trudeau of driving up inflation with excessive spending.

“Trudeau told reporters in Hamilton, Ont. The government is due to release a budget in the spring and has pledged to invest in health care and clean tech.

Conservative leader Speaking in Ottawa, Pierre Poilievre said the latest rate hike was a “stupid blow” from Trudeau.

“Government costs are driving up the cost of living,” he told reporters in Ottawa. Poilievre again calls for Macklem to be fired, citing banks also screwed up in COVID crisis.

CAD down 0.3 % to 1. dollars, or 57.57 cents. 2-year Treasury Note Yield fell nearly 6 basis points to 3.2024%.



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