Bank of Canada tightens the screw again, raising key rate to 3.75%

The country’s central bank has been trying for months to calm inflation and return it to the annual range of 1 to 3%.

Inflation remains high and widespread around the world, says the Bank of Canada. The strength of the global recovery from the pandemic, global supply disruptions and high commodity prices – especially energy – are driving growth.

Monetary tightening measures taken to control inflation are also weighing on economic activity around the world. It is expected to decline as economies slow and supply disruptions ease, the central bank said.

Economist Daniel Denis recalled in an interview for RDI that these increases were expected.

% autour du printemps”,”text”:”On s’attendait à ce que la Banque arrive à 4% autour du printemps”}}”>The bank was expected to reach 4% in the spring.he says.

But the economist wants to be reassuring.

« Perhaps the small consolation is that rate hikes are more behind us than ahead. »

Quote from Daniel Denis, economist

%, la Banque a augmenté de 0,50%, fait-il remarquer. Je pense que la Banque commence à être sensible à l’impact de sa politique.”,”text”:”Aujourd’hui, beaucoup de gens s’attendaient à une hausse de 0,75%, la Banque a augmenté de 0,50%, fait-il remarquer. Je pense que la Banque commence à être sensible à l’impact de sa politique.”}}”>Today, many people expected growth of 0.75%, the bank grew by 0.50%, he notes. I think the bank is becoming sensitive to the effects of its policies.

To slow global growth?

The bank paints an overall picture of the state of world economies and estimates that the growth of the US economy should be near zero for most of next year. Labor markets remain tight, even as tight financial conditions dampen economic activity.

As a result of slowing international demand, growth is expected to stagnate through the end of this year and into the first half of 2023 as the effects of higher interest rates ripple through the economy.

The bank expects growth to slow GDPwhich should increase to almost 1% next year and to 2% in 2024.

In Canada, the economy remains in a situation of excess demand and labor markets also remain tight, the bank notes.

Demand for goods and services continues to outstrip the economy’s ability to meet it, putting upward pressure on inflation in the country. Businesses continue to report widespread labor shortages, and since the economy fully reopened, strong demand has led to soaring service prices.we can read

The effects of a series of key rate hikes are beginning to be felt across sectors, particularly the housing market. It is experiencing a significant decline, and household and business spending is moderation.

In Europe, we should see a contraction in the coming months, especially due to acute lack of energy.

The economy in China appears to have recovered following recent lockdowns aimed at containing the pandemic, but problems facing the real estate market will continue to weigh on growth, notes the Bank of Canada, which forecasts a slowdown in global growth. It will increase from 3% in 2022 to around 1.5% in 2023 and then rise to around 2.5% in 2024.

A customer in the meat section of a grocery store.

Food prices continue to rise.

Photo: Radio-Canada / Ivanoh Demers

The consumer price index has shown a slight decline in recent months. While annualized inflation jumped from 8.1% in June, it settled at 7.6% in July, 7% in August and 6.9% in September.

It was the price of food sold in stores that drove inflation up in September. In one year, their price jumped by 11.4%, which is not seen in more than 40 years.

This situation convinced the Competition Authority to launch a study on price cutting in the food industry on Monday.

The employee places the vegetables in the refrigerator.

Food prices in stores jumped 10.8% in August compared to the same period a year ago, according to Statistics Canada.

Photo: Radio-Canada / Ivanoh Demers

In a speech to the Chamber of Commerce in Halifax in early October, Bank of Canada Governor Tiff Macklem warned that further interest rate hikes will be needed to curb inflation.

In hindsight, the governor argued that the central bank had shown a too much optimism that high inflation is likely to be temporary.

People look at the front of a house for sale.

Challenges facing the real estate market will continue to weigh on growth, notes the Bank of Canada.

Photo: Bloomberg/Daniel Acker

Recession Likely?

In testimony before the Senate Banking, Trade and Economy Committee, former Bank of Canada Governor Mike Carney said on Oct. 20 that a global recession is likely and that it will be difficult for Canada to avoid a similar economic downturn.

Canada’s Deputy Prime Minister and Finance Minister Chrystia Freeland acknowledged last week that the economy will slow in the coming months.

In an economic study released Monday, Desjardins writes that Canada’s economy continues to show signs of weakness. points de base d’ici la fin de l’année pour contrôler l’inflation encore très élevée, les secteurs sensibles aux taux d’intérêt risquent de continuer à freiner la croissance du PIB réel”,”text”:”Comme la Banque du Canada devrait relever son taux directeur de 100points de base d’ici la fin de l’année pour contrôler l’inflation encore très élevée, les secteurs sensibles aux taux d’intérêt risquent de continuer à freiner la croissance du PIB réel”}}”>With the Bank of Canada expected to raise its policy rate by 100 basis points by the end of the year to control still very high inflation, interest rate-sensitive sectors are likely to continue to dampen real GDP growth.suggests Desjardins Chief Economist Jimmy Jean.

While Desjardins forecasts 3.2% real GDP growth in Canada this year, the cooperative estimates that the Canadian economy will grind to a halt in 2023.

Jimmy Jean and his team expect the Bank of Canada’s key interest rate to settle at 4.25% at the end of the year.

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