The show must go on! Despite growing uncertainty surrounding geopolitical tensions in eastern Europe and what appear to be signs of stagnating economic growth, the Bank of Canada is prepared to aggressively continue tacking inflation.
Bank of Canada Deputy Governor Sharon Kozicki reinforced the central bank’s “unwavering commitment” to bring inflation levels within the 2% target range, hinting that policy makers may take monetary prudence even further, and embark on quantitative tightening. “I expect the pace and magnitude of interest rate increases and the start of QT to be active parts of our deliberations at our next decision in April,” she said during a video speech to the Federal Reserve Bank of San Francisco on Friday.
Kozicki pointed out that Canadians are in a better position to deal with higher borrowing costs compared to the 2018— the last time the bank embarked on a tightening cycle. Although households facing high levels of debt pose a risk to Canada’s economy, the strong rebound in the labour market, coupled with a significant accumulation of savings, are expected to help brace Canadians’ balance sheets.
Her speech suggests the Bank of Canada is serious about tackling inflation, which soared to a 30-year high of 5.7% in February. She also warned that the conflict in Ukraine is driving prices substantially higher than the central bank’s expectations, and that higher inflation levels are “especially painful” for low-income households.
Prior to her remarks, markets were forecasting nine more 25-basis point increases in borrowing costs throughout the remainder of the year. Now, however, investors are bracing for an even larger boost come the next policy meeting. “This is a clear nod to the chance of a 50-basis-point hike at the April meeting,” said BMO macro strategist Benjamin Reitzes, as cited by Bloomberg. “The door is wide open.”
Information for this briefing was found via Twitter and Bloomberg. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.