The BoC has often paused its rate hikes during past tightening cycles–sometimes more than once in a given cycle
The BoC has shown it will tighten even with core CPI inflation below its 2% target (That’s largely because the BoC tries to anticipate inflation and because it takes roughly a year or more for rate hikes to work through the economy.)
Rates rose an average of 200 basis points over 18 months in the past four cycles
BMO says the Bank of Canada typically sets policy after heavy consideration of five “C’s:”
Core CPI (inflation)
Cross-border exports (to the U.S.)
Crises (economic, financial, or geopolitical)
That last “C” happens to be a factor today, courtesy of the European debt crisis. Nonetheless, BMO says: “We judge the Bank’s scale will eventually tip to the domestic data side, and the new tightening cycle will toe the stylized line.”
In other words, BMO expects concerns about European debt to fade at some point, with the BoC continuing its path to more normalized (higher) interest rates.
Like news like this?
Join our CMT Updates list and get the latest news as it happens. Unsubscribe anytime.
Thank you for subscribing. One more step: Please confirm your subscription via the email sent to you.