(Kitco News) The Bank of Canada raised rates by another 50 basis points Wednesday, which brought its key interest rate to 4.25%. The move was largely in line with market expectations.
In preparation for a potential pivot or a further slowdown in rate hikes, the Bank of Canada also said it "will be considering" whether more hikes are needed.
"Governing Council continues to assess how tighter monetary policy is working to slow demand, how supply challenges are resolving, and how inflation and inflation expectations are responding," the Bank said Wednesday. "Quantitative tightening is complementing increases in the policy rate. We are resolute in our commitment to achieving the 2% inflation target and restoring price stability for Canadians."
The Bank of Canada has raised interest rates by 400 basis points since the first move in early March. In the latest statement, it cited a historically low unemployment rate and a resilient economy. Canada's Q3 GDP came in at 2.9%, nearly doubling market expectations, and the October employment report revealed an increase of 108,300.
"GDP growth in the third quarter was stronger than expected, and the economy continued to operate in excess demand. Canada's labour market remains tight, with unemployment near historic lows," the central bank said. "Overall, the data since the October MPR support the Bank's outlook that growth will essentially stall through the end of this year and the first half of next year."
Analysts interpreted the messaging by Canada's central bank as more cautious.
"The Bank of Canada flashed a yellow card on its rate hiking team, by sounding more cautious about its willingness to press on to even higher interest rates in 2023 even as it tightened today," said CIBC World Markets chief economist Avery Shenfeld. "The statement cited signs that the economy will see a stall in growth in coming quarters, but notes that the recent deceleration in core inflation still leaves it above target."
CIBC sees the December rate hike as a potential peak, but the economy will need to show clear signs of cooling. "While the tightening cycle likely has reached its zenith, we'll need the pain of these higher rates to persist for a while to stall economic growth and thereby cool inflation," Shenfeld added.
At the last meeting in October, Canada’s central bank surprised the markets by slowing its tightening pace to 50 bps from 75 bps and projected the country’s GDP to decline from 3.25% this year to under 1% next year and rise 2% in 2024.
The Bank of Canada's decision comes just a week before the Federal Reserve is expected to raise rates by 50 bps instead of 75 bps at its December meeting.
Following the announcement, gold priced in Canadian dollars pared its daily gains, last trading at $2,430.81, up 0.50% on the day. Earlier in the session, gold in CAD hit a daily high of just above $2,436.
