Interest Rates are at a 14-year high; Loonie does not pay attention!
After Tuesday's RBA meeting and Thursday's European Central Bank meeting, BoC raised the rates by 75 basis points to lift the Canadian Central bank's interest rates to a 14-year high.
As was widely expected, the Central Bank of Canada increased the cash rate to 3.25% from 2.50%. With this decision, we can call the Canadian central bank the most hawkish central bank among developed economies, with 300-basis-point in just six months! Also, policymakers increased the rate above the neutral range for the first time in almost two decades.
After the fourth consecutive outsized rate increase, now it is expected that BoC, the Governing Council, will wait for some time to see the reflection of these decisions in the Canadian economy, as hawkish policies can cool down the economic growth, even though some of the policymakers still believe that much higher interest rates need to go to return inflation to target.
While inflation in July fell to 7.6% from 8.1% in June, some analysts expected less hawkish policies. However, central bank officials believe this decline was because of a drop in gasoline prices, and inflation in other sections is still so high.
However, looking at other data, including GDP growth numbers, we can say that with more hawkish policies, the risk of recession is increasing; that is why we expect a pause for some time before the next move.
The Canadian dollar lost about 0.2% against the US dollar after this policy decision because it was in line with expectations. The market is already priced on another 75-basis point rate hike in the next FED meeting on September 21st.
