Bank of Canada’s 50-bps hike suggests the “peak is near”

The Bank of Canada stunned the markets on Wednesday by announcing its sixth straight rate increase of the year, which was 50 basis points lower than anticipated.

As a result, the benchmark rate has increased by 350 basis points from where it was at the start of the year to reach 3.75%.

Following the release of the September inflation statistics, which revealed that price rise was still stubbornly high, markets had widely anticipated a 75-bps increase.

However, the Bank’s choice to increase rates by only 50 basis points suggests that it may have some concerns about slowing economic growth and a weaker labour market.

Josh Nye of RBC Economics says it also implies that the “peak is near.”

Tiff Macklem, the governor of the Bank of Canada, said at a press conference after the decision that future rate changes may include “another larger-than-normal step,” or “more normal, smaller steps.”

The BoC is “trying to balance the risks of under- and over-tightening.” he continued, adding that we are “getting closer to the end of this tightening phase, but we’re not there yet,”

Most economists predict that the Bank will choose between 25 bps and 50 bps for its next rate decision on December 7; they also predict that this decision will be heavily influenced by economic data that will be released in the interim.

The next scheduled date for announcing the overnight rate target is December 7, 2022. The Bank will publish its next full outlook for the economy and inflation, including risks to the projection, in the MPR on January 25, 2023.

Read the full statement here.