Things can quickly change so get ready to see Bank of Canada actions speak louder than words over the coming year on interest rates. Read on.
To help deal with an overheating economy, the Bank of Canada began raising rates, starting in 1999, and peaking with a 50-basis-point hike in May 2000 to get to six per cent.
The Bank of Canada kept its rate at six per cent throughout the second half of 2000, but as things weakened in the economy, it felt it was time to cut. Policymakers cut the rate by 25 bps in January 2001, and by the time they were done cutting one year later, the rate was 2.25 per cent, a full 375-basis-point cut in one year.
This is not a knock on the Bank of Canada’s view from May 2000, although it might be instructive as to why you might not want to make a two-year prediction on when CPI will be back to two per cent. The monthly all-in CPI was just 0.66 per cent in January 1999. As the economy improved, the CPI rose to 2.63 per cent by December 1999, and was at 3.2 per cent in December 2000. By this time, the Bank of Canada had raised its rate to six per cent in an effort to calm inflation.Article content
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