Bank of Canada hiking up interest rates again?

The Bank of Canada is expected to announce Wednesday morning that its key overnight lending rate is going up for the sixth time this year, as it attempts to get inflation under control amid criticism the hikes could push Canada into a recession.

Interest rate hike

The consensus estimate from economists surveyed by Bloomberg is that the Bank will raise the rate by 75 basis points (three quarters of a percentage point) to 4 per cent — a rate not seen since the 2008 financial crisis.

Earlier, most analysts had been predicting a rise of 50 basis points.

“We’ve seen and heard enough of late to anticipate another oversized tightening move,” wrote National Bank in an economics report. 

Last week, Statistics Canada announced that the Consumer Price Index — a broad measure of inflation — had risen by 6.9 per cent in September compared to a year earlier. That was a slight drop from the 7 per cent annual “headline” inflation rate seen in August.

But some parts of the CPI — especially groceries — continued to rise more than expected, prompting suggestions the Bank could be more aggressive than the consensus. 

Bank of Canada hiking up interest rates

In September, grocery prices continued climbing, rising by 11.4 per cent year over year. That’s the highest annual rate of food inflation since August 1981. It was also the tenth straight month groceries have risen higher than the headline CPI number.

In July, the Bank stunned observers by raising the overnight rate by a full percentage point, to 2.5 per cent. The Bank also raised the rate in March, April and June, by 25, 50 and 50 basis points, respectively. The overnight rate began the year at 0.25 per cent, where it had been since the Bank dropped it three times in a month in March 2020, as the global COVID-19 pandemic was declared.

In September, the Bank raised its key overnight lending rate by three quarters of a percentage point, to 3.25 per cent, and said more hikes would be coming.

With a growing number of economists predicting the Canadian economy is headed for a recession — partly as a result of the rate hikes — the Bank has been coming under increasing public pressure to back off.

This past weekend, federal NDP Leader Jagmeet Singh called on the Bank to abandon its rate-hiking strategy, saying another hike would have a “serious impact on families.” 

Wednesday, asked about Singh’s perspective, Finance Minister and Deputy PM Chrystia Freeland stressed that the government wouldn’t interfere in the Bank’s decision-making.

“Our government respects very much the independence of the Bank of Canada,” Freeland said. 

However, she also acknowledged that Canadians have been facing tough economic conditions amid high inflation and rising interest rates. 

“Inflation is too high. Life is really tough for a lot of people and rising interest rates are posing another set of challenges,” Freeland said.


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