By Ketki Saxena
Investing.com — The Bank of Canada is expected as (the consumer price index) continues to soar, hitting 5.1% – a 30-year high in January. Keeping inflation under control (i.e. 2.0% or less) is the Bank of Canada’s primary mandate, and raising rates is one of the main tools it has to control the rise costs.
Meanwhile, the economy has shown strong growth and resistance to the Omicron Variant, undermining the Bank’s primary rationale for delaying rate hikes. Earlier in the day, Statistics Canada reported at 4.6% as the Canadian economy recorded a strong recovery from the 5.25% decline in 2020 during the onset of the COVID-19 pandemic.
Growth increased at an annualized annual rate of 6.7%, demonstrating the strong resilience of the Canadian economy to the Omicron variant of the coronavirus. Analysts had predicted that this most recent wave of the virus would have less of an effect on the economy than the initial and Delta variant.
At a press conference two weeks ago, BoC Deputy Governor Timothy Lane also appeared to strongly point to rate hikes coming tomorrow, saying the BOC should be “agile and if necessary, energetic” in the fight against inflation. The bank announced that inflation should be more persistent than expected – as it has done in almost all recent announcements.
If the BOC raises rates tomorrow, it will be the first time since March 2020 that the Bank’s key rate has breached the Extreme Lower Bound (ELB) of 0.25% – the lowest possible level to which the central bank can lower its rates. rate.
While analysts at Canada’s Big 6 Banks expect the first of many hikes this year to be announced tomorrow, rate hikes were also widely expected (but ultimately failed to materialize in the latest policy announcement). monetary policy of the BOC on January 26.)
Canada’s central bank could surprise markets and disappoint investors again tomorrow if it does not raise rates.
Some analysts, such as those at Laurentian Bank, expect rate hikes not to be as aggressive as the market generally expects, due to factors such as lopsided levels of household and corporate debt. . Canadian households added $51.6 billion in debt in the third quarter of 2021, near-record level, with mortgages representing the majority of the debt. the debt to disposable income ratio for the average Canadian is now at 177.2%, indicating that Canadians owe $1.77 for every dollar they earn.
Market uncertainty precipitated by Russia’s invasion of Ukraine, particularly if prolonged, could prompt central banks to raise bulls at a slower pace than initially expected, in order to mitigate the sell-off on stocks. stock markets.
A move by BOC Governor Tiff Macklem tomorrow could also be relatively bold, given that a BOC rate hike ahead of the Fed typically causes the loonie to rise against the dollar at an exacerbated pace, making that Canadian exports are becoming more expensive than usual.
is expected to raise rates later this month, with some analysts calling for an aggressive 50 basis point move from the Fed.
Merged media or anyone involved with Fusion Media will accept no liability for any loss or damage resulting from reliance on the information, including data, quotes, charts and buy/sell signals contained in this website . Please be fully informed of the risks and costs associated with trading in the financial markets, it is one of the riskiest forms of investment possible.