Bank of Canada raises interest rates by 0.50% and expects interest rates will need to rise further.
The Bank of Canada raised interest rates today by another 0.50% to 3.75%. While they are expecting GDP to slow down from 3.25% this year to just under 1% next year, inflation continues to worry the Bank.
It almost seems like nothing has changed in the last month:
Economy continues to operate in excess demand
Labour markets remain tight
Demand for goods is greater than the supply
Core measures of inflation have not yet moved meaningfully
It is surprising that we are not seeing a slowdown in demand given the significant decrease in housing affordability and increase in the cost of living. A third of all Canadian mortgages are variable, we should expect to see these homeowners significantly cut back on spending or put their houses back on the market.
We can expect the Bank of Canada to overshoot what is required to control inflation as they typically use lagging indicators. Their decisions trickle through the economy with interest rate sensitive items being impacted first.
All we can say based on this press release is that there will certainly be another rate hike in the near future.