Borrowing gets even more expensive
The big question now is how high the Bank will go before it feels inflation is under control
By Rob Roach, ATB Economics 26 October 2022 1 min read
The Bank of Canada announced* this morning it is raising its trendsetting policy interest rate from 3.25% to 3.75%. This is the sixth increase so far this year.
The hike is intended to help bring down inflation which was still elevated at 6.9% in September.
Today’s increase raises two key questions: how high will the Bank go before it hits pause on future rate hikes; and 2) will higher borrowing costs trigger a recession?
With regard to the first question, forecasts vary with some analysts leaning toward 4.0% for the Bank’s upper limit while others see the policy rate rising to 4.5% or even higher before inflation is under control.
According to today’s announcement, “future rate increases will be influenced by our assessments of how tighter monetary policy is working to slow demand, how supply challenges are resolving, and how inflation and inflation expectations are responding.”
When it comes to a recession, we have to remember that it is a case of “no pain, no gain.” The interest rate increases are intended to slow the economy on the grounds that doing so is better than letting inflation remain elevated.
As a result, even if the country does not slip into an actual recession, it will be close.
Similarly, even though Alberta’s economy is forecast to continue to grow next year, we will still feel the sting of higher interest rates.
*Each year, the Bank of Canada sets eight fixed dates on which it announces whether or not it will change its policy interest rate. The next announcement is scheduled for December 7, 2022.
Answer to the previous trivia question: The Berlin Wall fell on November 9, 1989.
Today’s trivia question: What is the value of all Canadian bank notes (cash) in circulation?