The Bank of Canada anticipates raising rates as the economy performs well

According to economists, the Bank of Canada (BoC) is anticipated to increase its benchmark overnight rate by a quarter of a percentage point to a 22-year high of 5.00% on Wednesday as economic growth continues to support a tight labor market and persistent underlying inflation.

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After a five-month break, the Canadian central bank last month increased its overnight rate to 4.75%, which is also the highest level since 2001, claiming that the country’s monetary policy was not stringent enough. Then it added that subsequent actions would rely on the picture provided by the most recent economic data.

Despite nine rate rises totaling 450 basis points since March of last year, the economy has grown despite some signs of cooling, and the housing market has showed signs of recovery. After slowing in April, the economy picked up steam in May, possibly rising by 0.4% on a monthly basis.

At 10:00 EDT (1400 GMT), the BoC will make its announcement.

The Bank of Canada’s (2%) objective for inflation has been exceeded for 27 straight months, and an end is not in sight, according to Royce Mendes and Tiago Figueiredo, economists with Desjardins Group.

The Bank of Canada is anticipated to increase its policy rate to 5.00% and leave room for additional increases this fall.

Twenty of the 24 analysts questioned by Reuters anticipate that the central bank will increase rates by another quarter-point and keep them there through the end of 2024. The probability of a rate hike on Wednesday is over 70%, and the financial markets have fully priced one in for September.

The three-month annualized rates of the BoC’s core measures just barely dipped lower in May despite the fact that headline inflation fell to 3.4%, less than half of the peak of 8.1% last year.

Data released on Friday shows that Canada added significantly more jobs in June than was anticipated.

BMO Capital Markets’ chief economist Doug Porter said a rate increase on Wednesday is probably but not a “foregone conclusion” because the BoC might defer raising borrowing prices until September.

Porter claimed that despite the very significant rate increases of the previous year, the economy didn’t appear to have suffered significantly. Furthermore, inflation is still higher than the Bank of Canada’s 2% target, let’s face it.