The Bank of Canada is widely expected to raise its trendsetting interest rate by 75 basis points to 2.25% at its policy meeting in Ottawa today.
If economists’ forecasts are accurate, the three quarters of one percentage point hike would be bthe largest increase to interest rates in Canada since 1998. The central bank already lifted rates by 50 basis points at each of its previous meetings held in April and June of this year.
The Bank of Canada is trying to lower inflation that is currently running at 7.7%, a 40-year high and could become entrenched in wages and prices, making it difficult to control. The central bank aims to keep annualized inflation within a range of 1% to 3%.
However, some economists worry that the aggressive interest rate increases could push the Canadian economy into a recession, defined as two consecutive quarters of negative growth.
The Bank of Canada is expected to provide a new forecast for economic growth and inflation at its meeting today and could signal that interest rates need to rise further in coming months.
The consensus view of economists is that the Bank of Canada’s benchmark overnight interest rate will reach 3.5% by year’s end, a level not seen since before the 2008-09 financial crisis.
That makes the Bank of Canada one of the more aggressive central banks among leading industrialized nations as the domestic economy continues to run up against capacity limits and benefit from high commodity prices.
