PrefBlog

The Bank of Canada 0has announced it has:

today increased its target for the overnight rate to 4¼%, with the Bank Rate at 4½% and the deposit rate at 4¼%. The Bank is also continuing its policy of quantitative tightening.

Inflation around the world remains high and broadly based. Global economic growth is slowing, although it is proving more resilient than was expected at the time of the October Monetary Policy Report (MPR). In the United States, the economy is weakening but consumption continues to be solid and the labour market remains overheated. The gradual easing of global supply bottlenecks continues, although further progress could be disrupted by geopolitical events.

In Canada, GDP growth in the third quarter was stronger than expected, and the economy continued to operate in excess demand. Canada’s labour market remains tight, with unemployment near historic lows. While commodity exports have been strong, there is growing evidence that tighter monetary policy is restraining domestic demand: consumption moderated in the third quarter, and housing market activity continues to decline. Overall, the data since the October MPR support the Bank’s outlook that growth will essentially stall through the end of this year and the first half of next year.

CPI inflation remained at 6.9% in October, with many of the goods and services Canadians regularly buy showing large price increases. Measures of core inflation remain around 5%. Three-month rates of change in core inflation have come down, an early indicator that price pressures may be losing momentum. However, inflation is still too high and short-term inflation expectations remain elevated. The longer that consumers and businesses expect inflation to be above the target, the greater the risk that elevated inflation becomes entrenched.

Looking ahead, Governing Council will be considering whether the policy interest rate needs to rise further to bring supply and demand back into balance and return inflation to target. Governing Council continues to assess how tighter monetary policy is working to slow demand, how supply challenges are resolving, and how inflation and inflation expectations are responding. Quantitative tightening is complementing increases in the policy rate. We are resolute in our commitment to achieving the 2% inflation target and restoring price stability for Canadians.

David Parkinson points out:

In the all-important final paragraph of the Bank of Canada’s rate announcement, the bank dropped its long-standing declaration that “Governing Council expects that the policy interest rate will need to rise further.” It now says the “Governing Council will be considering whether the policy interest rate needs to rise further.”

That signals that Wednesday’s 50-basis-point hike in the bank’s policy rate may very well be the last of this cycle. It’s the news investors, businesses and consumers have been looking for, after seven consecutive rate hikes that have raised the key rate by a full four percentage points.

The choice of phrasing means this isn’t by any means a guarantee that the bank won’t have one more increase in its pocket – say, a quarter-point hike – at its next sitting in late January. The Governing Council is certainly keeping that as an option. But it has set the stage for the bank to halt rate hikes in the January decision or do so after one more increase.

Prime followed:

• TD : Up 0.50% to 6.45%
• CIBC: Up 0.50% to 6.45%
• BNS: Up 0.50% to 6.45%
• RBC: Up 0.50% to 6.45%
• BMO:Up 0.50% to 6.45%

Well, Rob Carrick and Ryan Siever will be mad:

There’s a case to be made for banks giving borrowers a break when what is expected to be the biggest interest rate hike in 22 years is announced on Wednesday.

A brief flashback to 2015 is required to get the sense of this story. The economy back then was in the opposite shape of what it is now – weak enough to prompt the Bank of Canada to cut its trendsetting overnight rate by 0.25 of a percentage point in January and again in July.

The big banks hijacked part of that rate cut. While the overnight rate fell by a total 0.5 of a point, the banks cut their prime rate by cumulative 0.3 of a point. They held back the rest of the rate cut to build their revenues and profit.

There was a delay in reducing the prime when the Canada Overnight rate dropped 25bp to 0.75% in January 2015 and again when Canada Overnight dropped a further 25bp to 0.50% in July of that year.

This entry was posted on Wednesday, December 7th, 2022 at 10:20 pm and is filed under Canada Prime. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.