By Ketki Saxena
Investing.com -- The Bank of Canada raised interest rates 75 bps, a fourth consecutive outsized rate hike taking its benchmark policy rate to 3.25%, the highest amongst comparable major advanced economies.
The move had been largely expected by analysts, given the Bank of Canada’s repeated hints that rates will need to be at "the top end or slightly above" the neutral rate - between 2% to 3% - where monetary policy neither stimulates nor weighs on the economy.
The Bank is also continuing its policy of quantitative tightening, and indicates that further rate-hikes are to be expected.
In its press release accompanying the announcement, the Bank notes that “ As the effects of tighter monetary policy work through the economy, we will be assessing how much higher interest rates need to go to return inflation to target. The Governing Council remains resolute in its commitment to price stability and will continue to take action as required to achieve the 2% inflation target.”
Looking ahead, and in the context of the Bank’s hawkish rhetoric, analysts, including at Morgan Stanley (NYSE:MS), now expect two further consecutive 25bp rate hikes in October and December, bringing the policy rate to 3.75% by the end of the year.
The Bank’s statement today reinforces Bank of Canada’s tone in the last two quarters of acting “more forcefully” if needed, and that the Bank of Canada’s job will not be done until inflation is back at its 2% target (the latest reading was 7.6%).
At its previous meeting in July, the Bank of Canada raised its policy interest rate by 100bps, a "very unusual” magnitude of increase, but necessary in order to combat decades high inflation.