Bank of Canada Surprises With 50-Basis Point Rate Hike, Cuts GDP Outlook

The Bank of Canada surprised markets with a lower-than-expected 50-basis point interest rate

hike, taking its trendsetting overnight lending rate to 3.75%.

At the same time, the central bank lowered its forecast for economic growth in Canada next

year by nearly a full percentage point.

The Bank of Canada said it now expects gross domestic product (GDP) to fall to 0.9% next year

from 3.3% growth in 2022. Previously, the central bank said Canada’s economy would grow by

1.8% in 2023, down from 3.5% growth this year.

Despite the weakening economy, the Bank of Canada said that it anticipates continued interest

rate increases in the months ahead as it takes steps to dampen inflation that is currently at

6.9%, well above its 2% target.

However, the latest interest rate hike was less than the 75-basis-point increase expected by

markets and economists. The central bank increased rates by three-quarters of a percentage

point in September and by a full percentage point in July of this year.

The lower-than-expected interest rate increase has sparked a debate about whether the Bank of

Canada is beginning to ease back its monetary policy tightening.

At a news conference following the announcement of the latest rate hike, Bank of Canada

Governor Tiff Macklem said: “This tightening phase will draw to a close. We are getting closer,

but we aren’t there yet.”

Canada’s inflation rate was at an annualized 6.9% in September, down from a peak of 8.1% in

June of this year.

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