The Bank of Canada will almost certainly take the steeper path to higher rates next month — via financialpost Canada interestrates
the benchmark rate a quarter point on March 2 that the pace of future increases would be guided by data. The data over the past few weeks show the economy is considerably stronger than the central bank expected at the start of the year.
, near a modern low, and the consumer price index averaged year-over-year increases of 5.4 per cent over the first two months of the year, compared with the Bank of Canada’s January forecast of 5.1 per cent in the first quarter. That outlook preceded Russia’s invasion of Ukraine, which has destabilized the supply of oil, natural gas, agricultural staples and metals. “The result is inflation in the near term that is expected to be higher than we projected in January,” Kozicki said.Article content Higher interest rates won’t guarantee rain on the Prairies this summer, and Macklem has no influence over international oil prices. Bay Street economistthat central banks are about to trigger a recession is a good one. Alas, if you’re Macklem, and your primary job is keeping year-over-year increases in the consumer price index at about two per cent, the most recent set of data leave you with only one choice: reel faster. Still, many of the men and women who get paid to predict where interest rates are headed still were hedging their bets at the start of last week, perhaps because Macklemthat he and his lieutenants “fully intend to tighten policy in a deliberate and careful way, being mindful of the impacts and monitoring the effects closely.” But that was before the unemployment rate plunged to a level consistent with full employment; Statistics Canada that there were 915,500 unfilled jobs in the fourth quarter, 63 per cent more than a year earlier; and inflation went from hot to hotter.Article content Under Stephen Poloz, the previous governor, the Bank of Canada moved away from pointing Bay Street and Wall Street in the direction of where interest rates were headed. Poloz believed professional investors and analysts had started putting more effort into reading between the lines of central bankers’ speeches, depriving markets of the kind of rigorous analysis that ensures price discovery. Bay Streetwhen the Bank of Canada cut the benchmark interest rate in January 2015 without any notice. Poloz’s response, essentially, was that anyone who was watching the data should have seen it coming. Oil prices had collapsed, and history was clear on what happens to Canada’s trade dependent economy when the value of its most valuable export plunges.Article contentfor opting to leave interest rates unchanged, even though all the boxes for an increase had been checked. There will be no ambiguity ahead of the next policy decision on April 13. Kozicki telegraphed a relatively aggressive half-point increase, instead of the customary quarter-point change, and indicated that policy-makers likely will likely stop buying government bonds, a process called quantitative tightening, or QT. “I expect the pace and magnitude of interest rate increases and the start of QT to be active parts of our deliberations at our next decision in April,” Kozicki said in remarks prepared for a conference hosted by the Federal Reserve Bank of San Francisco. “The reasons are straightforward: inflation in Canada is too high, labour markets are tight and there is considerable momentum in demand.”Article content Kozicki’s steer had the desired effect. The dollar jumped and bond yields rose. Veronica Clark, an economist at Citigroup Global Markets Inc., changed her forecast, and now predicts half-point increases in April, June and July, followed by a series of quarter-point lifts that leave the benchmark rate at 2.75 per cent at the end of the year, compared with 0.5 per cent currently. “The hawkish tone of the speech swings the door wide open to more aggressive rate hikes,” Benjamin Reitzes, an economist at BMO Capital Markets, said in a research note.
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