Bank of Canada delivers quarter-point rate hike, marking eighth increase in a row
, making it the first major central bank to signal an end to monetary policy tightening.
The bank lowered its forecast for inflation on Wednesday. It also reiterated that it expects the economy to “stall” in the first half of the year, but does not foresee a significant recession.The bank’s decision to announce a “conditional pause” marks a major shift in monetary policy. Over the past year, it has forced Canadian borrowing costs sharply higher to combat runaway inflation. This has hammered the housing market and pushed the economy to the edge of a recession.
The expected drop in inflation comes alongside a slowdown in the Canadian economy. The bank expects growth to flatline through the first half of 2023, as higher borrowing costs squeeze Canadians’ finances and weigh on consumer spending and business investment. “The rise in borrowing costs is expected to continue to strain many household budgets. Interest payments on household mortgages are estimated to be about 4.5 per cent of disposable income at the beginning of 2023, up from 3.2 per cent at the beginning of 2022,” the bank said in its quarterly Monetary Policy Report , published Wednesday.The prospect of a recession, even a mild one, raises questions about when the Bank of Canada might start cutting interest rates.
“One of the things that we learned, particularly after we found out that Australian CPI has re-accelerated, is that it’s a very uncertain environment.”
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