For the eighth time in a row The Bank of Canada (BoC) just hiked interest rateswhich is now 4.5% or 4.25 percentage points higher than a year ago.
Which will obviously have a positive impact on the entire credit network, namely mortgages, personal loans, business loans, etc.
Unfortunately, prices could continue to rise for both individuals and businesses.
The Bank of Canada’s board of directors “stands ready to raise interest rates further, if necessary, to bring inflation back to the 2% target,” the central bank’s statement said.
Why? Because the BoC board “remains committed to restoring price stability” for Canadians.
Yes but…
The one-year measure of core inflation is currently around 5%, still 3.1 percentage points lower than last June when the inflation rate topped 8.1%.
After raising the key interest rate on consumer prices, the inflation rate fell to 6.3%.
Although inflation has fallen to 5% today and the downward trend would no doubt have continued given the lagged price effect of previous interest rate and interest rate hikes, the Bank of Canada bigwigs clearly sense that things are not moving fast enough.
The decline in gasoline prices and the recent softening in the price of durable goods certainly represent progress in the fight against inflation.
But as Canadian households “continue to feel the brunt of high inflation through their essential spending, with food and shelter continuing to rise,” near-term inflation expectations remain elevated.
The Bank of Canada is therefore raising interest rates again and intends to further tighten monetary policy in the coming months.
No choice…
Many Canadians are wondering whether the Bank of Canada really needed to raise interest rates in this way.
It should be noted that monetary tightening has been carried out by all major central banks simply because inflation is hitting global levels. And inflation weakens the health of the world economy and consequently impoverishes people.
To counteract inflation, the most effective remedy, according to central bank leaders, is to raise interest rates.
Given the globalization of trade exchanges, and especially given the importance of our trade exchanges with the United States, it would have been inappropriate for the Bank of Canada not to follow in the footsteps of the Fed (American Federal Reserve) when the latter is the benchmark interest rate.
Not only would inflation in Canada be significantly higher today, but the Canadian dollar would undoubtedly have taken a nasty run against the American currency.
For the time being, the Bank of Canada does not see a recession in its crystal ball for 2023. It expects stabilization for a few months at most and a resumption of growth towards the end of the year.
One thing is for sure, with the Bank of Canada putting a strain on Canadians’ personal finances with its numerous interest rate hikes, it risks plunging us into a recession if it continues to raise rates.
