The Bank of Canada is widely expected to raise rates by another half a percentage point this week, the same pace as in April, and to signal that it will not slow the pace of rate hikes until inflation shows signs of cooling.
Twelve economists polled by The Wall Street Journal forecast the Bank of Canada will raise the overnight call rate from 1.0% to 1.5% when it announces its latest policy decision on Wednesday. The Bank of Canada will explain the rationale in an accompanying statement. At the beginning of 2022, the Bank of Canada’s benchmark interest rate is 0.25%.
“We expect the rate guidance in the statement to remain vague and flexible, only to reiterate that rates will need to rise further,” said Taylor Schleich, an economist at National Bank Financial. Schleich forecasts the Bank of Canada’s benchmark rate to hit 2.5% by the end of 2022.
The consumer price index (CPI) rose nearly 7% year-on-year, a 31-year high, while the core CPI, which excludes volatile commodities such as food and energy, rose nearly 4%. The Bank of Canada is tasked with setting interest rate policy to achieve and maintain 2% inflation, and the most recent CPI numbers were higher than the Bank of Canada forecast.
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