Throughout the last few years, and especially during the COVID-19 pandemic, we saw the Bank of Canada make major monetary moves in an attempt to protect citizens and hedge a recession, increasing inflation, and now, a potential second inflationary period. Whew, there has been a lot going on!
A Timeline of The Bank of Canada's Monetary Tightening
Let's look at a timeline of the Bank of Canada's monetary tightening to understand more about their recent decisions:
In October 2018, we saw the bank hike interest rates to 1.75% overnight. This was when the global economic outlook remained solid and inflation was fluctuating, so the Governing Council agreed that "the policy interest rate will need to rise to a neutral stance to achieve the inflation target."1
Fast-forward to March 2020, when the whole world hit a stop, and everything changed due to COVID-19. The Bank of Canada first cut interest rates by 50 basis points to 1.25% on March 4th, then cut rates by another 50 basis points to 0.75% on March 13th, and then cut rates by another 50 basis points to a record low of 0.25%.2
Throughout 2021, the Bank of Canada adjusted its quantitative easing program, which made it easier for Canadians to borrow money and for companies to stay in business. In January 2022, the bank ended this forward guidance and warned that interest rates needed to go up.3
March - July 2022
From March-July 2022, the Bank of Canada consistently raised interest rates, first to 0.5% on March 2, 2022; then to 1.0% on April 13, 2022; then to 1.5% on June 1, 2022; and then to 2.5% on July 13, 2022.
For the rest of 2022 and into Q1 of 2023, interest rates continued to rise, and as of March 8, 2023, they are currently 4.5%.4
Here is a breakdown:
- September 7, 2022 - 3.25%
- October 26, 2022 - 3.75%
- December 7, 2022 - 4.25%
- January 25, 2023 - 4.5%
- March 8, 2023 - 4.5%
Director of Canada Economics Tony Stillo expects that the Bank of Canada will hold the interest rate at 4.5% through 2023 before gradually easing rates back down in early 2024. We will continue to see how this potential recession plays out in Canada, as well as throughout the United States and the rest of the world.5
According to the Bank, monetary policy actions "take time (usually between six and eight quarters) to work their way through the economy and have their full effect on inflation." The Bank also says that monetary policy is always forward looking and that policy rate setting is based on the Bank's judgment of where inflation is likely to be in the future, not where it is today.6
With that being said, do you expect the Bank to raise interest rates in the near future?
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Ivy Pierson, CEP, MBA Investment Advisor Representative Securities and advisory services offered through Cetera Advisors LLC (doing insurance business in CA as CFGA Insurance Agency LLC), member FINRA/SIPC, a broker/dealer and a Registered Investment Adviser. Cetera is under separate ownership from any other named entity. Pierson Wealth Management is located at 28368 Constellation Rd., Ste. 396, Santa Clarita, CA 91355. CA Insurance Lic#0C92500. All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful