Everyone from mortgage borrowers to condo builders are watching the Bank of Canada closely, looking for signals that the central bank may be approaching its “terminal” rate – the point where it will determine that rates have been raised enough to fight inflation, ending its aggressive hiking cycle.
However, new commentary from a global policy think tank indicates that further rate hikes are all but assured, to add up to another 75 basis points to Canada’s already high 3.25% benchmark.
According to Organisation for Economic Co-operation and Development, the Bank of Canada will hike rates to 4.5% in 2023 before it’s over; this is considerably higher than the 3 to 3.5% initially forecast by economists, and well above the Bank’s inflation growth target of 2%.
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“Inflation has become widespread in many economies. Tighter monetary policy and easing supply bottlenecks should moderate inflationary pressures next year, but high energy prices and higher labor costs should moderate the pace of decline,” the report read. The OECD report.
“Further interest rate hikes are needed in most major economies to anchor inflation expectations and ensure a sustained reduction in inflationary pressures.”
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The think tank also cut its forecast for the global and Canadian economies, predicting a global slowdown to 2.2% next year, from its original call of 2.8%, and a slowdown in Canada’s GDP to 3.4% this year and 1.5% the next, a drop of 1.1% compared to its initial forecast.
According to the report, higher interest rates will effectively reduce inflation this year and next, but CPI growth will remain uncomfortably high, requiring tighter and prolonged monetary policy. Among G20 economies, it will slow from 8.2% this year to 6.5% next year, and decline from 6.2% in advanced G20 economies this year to 4% in 2023.
Canada’s inflation rate, meanwhile, will hover around 6.9% for the remainder of 2022 before declining to 4.5% in 2023, “although still above the Bank’s target range. of Canada which is between 2 and 3%. Inflation growth stood at 7% in August, reports Statistics Canada, indicating that the measure, while stubbornly high, has peaked.
The Bank of Canada is expected to make its next interest rate announcement on Wednesday, October 26, where it is generally expected to implement an increase of at least 0.5%. The central bank has raised interest rates five times since March, raising its overnight lending rate by a total of 3%, translating to a current prime rate of 5.45%.
Penelope Graham is the editor of STOREYS. She has over a decade of experience in real estate, mortgages and personal finance. His commentary on the housing market is featured frequently in national and local media, including BNN Bloomberg, CBC, The Toronto Star, National Post and The Globe and Mail.
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