25bps hike and more to come?
The Bank of Canada (BoC) will hold its interest rate decision and monetary policy meeting on Wednesday, March 2 at 15:00 GMT, and as we can hear from different banks, the BoC getting ready for a 25 bps rate lift-off and to announce the forward guidance.
The Canadian economy was one of the best-recovered economies from the Covid crises. However, same as other developed economies, they are also paying the price with a bit higher than expected inflation. And while the labor market also increasing, now we believe BoC policymakers will raise policy rates by 25 bps in this meeting.
So far, they ended asset purchases ahead of schedule to signal rate hikes also can start earlier than expected. At the same time, in the past days as we know the Russian attack on Ukraine created international tensions which can affect the global economy and the recovery pace. A rate hike that can again slow down the economic development will be a bit more hawkish decision, therefore we have to wait and see how BoC policymakers can handle that.
Higher inflation is not what economies are looking after that and if central banks including BoC do nothing to control it, can jeopardize economic growth. On the other hand, increasing rates can curb inflation, but curb economic development as well, and now the risk of higher inflation will turn to the risk of stagflation.
