• PWC

Monetary Policy Not A Pre-Set Course

Updated: Sep 9

Interest rates rose on average during April by approximately 43 basis points across the Canadian curve, says a Beutel Goodman ‘Fixed Income Update.’ The Bank of Canada (BoC) raised the overnight rate by 50 basis points to one per cent, in line with market expectations. With inflation surging and a tight labour market, it had little choice but to hike aggressively in an effort to curb pressure on prices. It also revised its estimate of the neutral rate higher by 25 basis points to a two to three per cent range. However, Tiff Macklem, BoC governor, emphasized that monetary policy is not on a pre-set course and that the BoC could pause its tightening cycle once monetary policy is closer to neutral if demand responds quickly to higher rates or it might need to take rates modestly above neutral to bring demand and supply back into balance and inflation back to target. The bank expects inflation to average almost six per cent in the first half of 2022 and remain well above the control range throughout this year. It then expects it to ease to 2.5 per cent in the second half of 2023 and return to the two per cent target in 2024.

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