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The Bank of Canada hiked its policy rate to 2.5% on Wednesday from 1.5%, a surprise 100-basis-point move and its largest...
07/13/2022

The Bank of Canada hiked its policy rate to 2.5% on Wednesday from 1.5%, a surprise 100-basis-point move and its largest increase since August 1998. Here is a timeline of policy moves by the central bank, with the most recent first:

July 13, 2022 - The Bank of Canada raises its overnight interest rate by 100 basis points to 2.5% from 1.5%, a larger than expected hike, and says it now sees inflation averaging around 8% over the middle quarters of 2022.

June 1, 2022 - The Bank of Canada raises its overnight rate by 50 basis points to 1.5%, as expected, as says it will act "more forcefully if needed" to bring inflation back to target.

April 13, 2022 - The Bank of Canada raises its overnight interest rate by 50 basis points to 1.0%, as expected, and says it now sees inflation averaging 6% in the first half of this year. The bank also says it will begin quantitative tightening, effective April 25.

March 2, 2022 - The Bank of Canada raises its overnight interest rate to 0.5% from a record low 0.25%, as expected, and says rates would need to go higher despite increased uncertainty following Russia's invasion of Ukraine. The bank also says it will continue with the reinvestment phase of its bond buying program.

Jan. 26, 2022 - The Bank of Canada ends its forward guidance, a commitment to keep interest rates low, and warns interest rates need to go up.

Oct. 27, 2021 - The Bank of Canada says it has exited quantitative easing and entered the reinvestment phase. It will purchase Government of Canada bonds only to replace maturing bonds, expected to be about C$1 billion ($795.6 million) a week.

July 14, 2021 - The Bank of Canada adjusts its quantitative easing program to a target pace of C$2 billion a week.

April 27, 2021 - The Bank of Canada adjusts its quantitative easing program to a target pace of C$3 billion a week.

Oct. 28, 2020 - The Bank of Canada adjusts its quantitative easing program to a target pace of C$4 billion a week, shifting purchases towards longer-term bonds.

March 27, 2020 - The Bank of Canada cuts its overnight interest rate by 50 basis points to record low 0.25% and commits to purchasing at least C$5 billion a week of Government of Canada bonds. This is its first-ever quantitative easing program.

March 13, 2020 - The Bank of Canada cuts its overnight interest rate by 50 basis points to 0.75%.

March 11, 2020 - The World Health Organization declares COVID-19 a global pandemic.

March 4, 2020 - The Bank of Canada cut its overnight interest rate by 50 basis points to 1.25% as COVID-19 cases spike across the globe.

Oct. 24, 2018 - The Bank of Canada hikes its overnight interest rate to 1.75%.

($1 = 1.2569 Canadian dollars)

OTTAWA (Reuters) -The Bank of Canada on Wednesday raised its benchmark interest rate by a full percentage point, surpris...
07/13/2022

OTTAWA (Reuters) -The Bank of Canada on Wednesday raised its benchmark interest rate by a full percentage point, surprising markets with its biggest rake hike since 1998 in a bid to tame soaring inflation.

The central bank, in a regular rate decision, raised its policy rate to 2.5% from 1.5%, and said more hikes would be needed. The move was more forceful than the 75-basis point increase economists and money markets had forecast.

"With the economy clearly in excess demand, inflation high and broadening, and more businesses and consumers expecting high inflation to persist for longer, the Governing Council decided to front-load the path to higher interest rates," the bank said.

"Interest rates will need to rise further," it added.

The move makes it the first G7 central bank to increase rates by 100 basis points in this cycle. It follows a 75 basis point rate hike by the U.S. Federal Reserve last month.

"The Bank of Canada saw the Fed hike 75 bps and said 'Hold my beer,'" said Royce Mendes, head of macro strategy at Desjardins Group, noting hawkish language in the statement that accompanied the "colossal move."

In its statement, the Bank of Canada raised its near-term inflation forecasts and made clear it expects price gains to go higher, averaging around 8% in the middle quarters of 2022. Canada's inflation rate hit 7.7% in May, near a 40-year high.

The central bank now sees inflation averaging 7.2% this year, falling to about 3% by the end of 2023 and then back to the 2% target by the end of 2024.

The jumbo hike, which sent the Canadian dollar higher, was designed to "front-load the path to higher interest rates," the bank said. It has been playing catch-up for months after significantly underestimating the persistence of inflation.

But the move combined with the promise of more coming could spook markets, said economists.

"I think the market is going to be on edge here about the possibility of more upside surprises on rate hikes," said Doug Porter, chief economist at BMO Capital Markets.

SLOWER GROWTH

The policy rate is now at the nominal neutral rate - the midpoint between 2% and 3% - where monetary policy is neither stimulative nor restrictive.

The Canadian dollar was trading 0.4% higher after the news at 1.2970 to the greenback, or 77.10 U.S. cents.

The Bank of Canada noted a "sharp slowdown" in Canada's housing market was underway, with that contraction expected to continue this year and into 2023.

Economic growth is now expected to be lower this year, with gross domestic product rising 3.5%, then slowing to 1.8% in 2023.

The slower growth is "largely due to the impact of high inflation and tighter financial conditions on consumption and household spending," the bank said. Its baseline forecast is for a soft landing, with no recession over the next three years.

Governor Tiff Macklem, who just recovered from COVID-19, participated in the rate decision remotely, the central bank said.

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