It was widely expected that the Bank of Canada would announce this morning that it is raising its trendsetting policy interest rate by between 50 and 100 basis points.

Lo and behold, it has decided to go with an increase of 75 basis points, taking the policy rate from 2.5% to 3.25%. This is the fifth increase so far this year.

There are three big questions going forward:

1) If the Bank decides on additional hikes, when will it do it? The next fixed announcement dates are October 26 and December 7.

2) How high will the Bank go before it feels higher borrowing costs will cool the economy enough to bring inflation back down to the 2% target?

3) Will the Bank be able to negotiate a “soft landing” such that the economy slows enough to tame inflation but not so much that we slip into recession?

Speculation regarding these questions abounds and today’s announcement from the Bank does not provide a great deal of forward guidance other than “Given the outlook for inflation, the Governing Council still judges that the policy interest rate will need to rise further. … As the effects of tighter monetary policy work through the economy, we will be assessing how much higher interest rates need to go to return inflation to target.”

Our sense is that at least one more rate hike will happen before the end of the year, that the increases will top out at 3.5% to 3.75% and that a soft landing will be tough, but not impossible, to pull off. We won’t, of course, know for sure until we can look back on the actual decisions and outcomes.

Answer to the previous trivia question: Illegal goods and services are NOT included in the calculation of gross domestic product.

Today’s trivia question: What was the average value of a new mortgage loan in Canada as of the second quarter of 2022?