The Bank of Canada is expected to start raising interest rates today (March 2) to combat inflation that is currently at a 30-year high.
All 27 economists surveyed by Bloomberg Markets anticipate that Canada’s central bank will raise its benchmark interest rate by a quarter percentage point to 0.5% at its policy meeting later today.
The Bank of Canada is also widely expected to reveal its plan to shrink holdings of government bonds acquired over the last two years.
The rate move would be the first increase in borrowing costs in Canada since 2018, starting what’s expected to be one of the fastest tightening cycles since the central bank adopted a 1% to 3% inflation target three decades ago.
Markets are pricing in a total of six interest rate increases over the next 12 months. Russia’s invasion of Ukraine is unlikely to deter the Bank of Canada, with surging prices for commodities buffering Canada from any broader global economic downturn.
Today’s decision, which will come at 10 a.m. in Ottawa, is a statement-only affair with no new forecasts to be provided. Bank of Canada Governor Tiff Macklem will give a speech and hold a news conference tomorrow (March 3), where he’ll provide more insight into the rate decision.
The Bank of Canada, which has held its benchmark interest rate at 0.25% since March 2020, has already begun laying the groundwork for the coming hikes. At its last policy decision in January, Macklem warned that higher borrowing costs are imminent in an economy at full capacity and no longer in need of extraordinary stimulus measures.
In its latest projections, the Bank of Canada sees inflation falling back to about 3% by the end of this year and near its 2% mid-range target in 2023.
Markets are betting the Bank of Canada’s benchmark interest rate will reach 1% by June and be at 1.75% this time next year. Banks use that benchmark to price borrowing costs for variable-rate mortgages.