Bank of Canada signals a pause to the interest rate hike
But another possibility is that the bank has already decided to end its rate hikes, and wanted to use Wednesday’s statement to give the markets and the Canadian public clear and ample warning. That would be consistent with Governor Tiff Macklem’s demonstrated preference in the past to institute shifts in policy direction via a series of gradual steps.
To that end, the rate announcement shed some light – but, not enough – on what will determine whether Wednesday’s hike will prove to be the last of the cycle, or the bank will see a need to nudge rates higher one more time. The statement also hinted that signals of domestic demand may take a front seat to overall economic growth in guiding the bank’s views on the effectiveness of its rate hikes. Canadian monetary policy can’t do much about international economic forces, which are sustaining strong prices for Canadian commodity exports. But the slowdown in domestic demand in the third quarter is evidence that higher rates are digging into the economy – and the bank wasn’t shy about saying so on Wednesday.
Mr. Macklem has been emphatic that a cooler labour market is essential to taming inflation – and, thus, central to policy direction. Without more visibility into the bank’s interpretation of the most recent labour data, we can’t claim to see how far it is leaning toward ending rate hikes.
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CANADA: Key interest rate hiked by half percentage pointBut Bank of Canada signals it may pause aggressive rate hike cycle
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