Markets had baked in a 75 basis point hike that didn’t come
The Bank of Canada surprised many economists and money markets by hiking its trend-setting interest rate by 50 basis points on Wednesday instead of a more aggressive 75 basis points.
The bank now expects 0.9 per cent annual GDP growth next year, down from its previous estimate of 1.8 per cent. While it avoided using the word “recession,” the bank said that an economic contraction is increasingly likely.Stephen Brown, senior Canada economist, Capital Economics: Today’s smaller 50 bp interest rate hike, which took the overnight rate to 3.75%, suggests that the Bank of Canada is growing confident that its actions so far will be enough to vanquish inflation although, by doing less than markets were pricing in, the Bank risks sending too dovish a message that it will eventually have to reverse.