RateCaptain
  • FX Rates
  • Money Market
  • Cryptocurrency
  • Commodities
  • Corporates
  • Contact Us
No Result
View All Result
Subscribe
  • FX Rates
  • Money Market
  • Cryptocurrency
  • Commodities
  • Corporates
  • Contact Us
No Result
View All Result
RateCaptain
No Result
View All Result
Home Economics

Bank of Canada turns to interest rate guidance amidst increased inflationary pressures

Rate Captain by Rate Captain
May 10, 2022
in Economics
Reading Time: 3 mins read
A A
0
Bank of Canada turns to interest rate guidance amidst increased inflationary pressures
Share on FacebookShare on TwitterShare on WhatsappShare on Telegram

Canada’s central bank has taken the rare step of providing guidance on the path of interest rates, as it aims to keep expectations secured while it unwinds stimulus in the economy faced with a runaway inflationary situation.

However, economists have predicted that the application of the same strategy as that used during the COVID-19 pandemic — a version of the “forward guidance” may not be effective. As such,  the central bank should consider a more effective approach to get rates into the neutral range and then hold.

AlsoRead

IMF- Global Economy growth is expected to be slow in 2023

Breaking: Nigeria’s Inflation surprisingly plunged to 21.34% in December 2022

Inflation Will Defy CBN’s Monetary Policy Efforts, To Hit 21.6% – Cape

The Governor of the Bank of Canada,Tiff Macklem has now considered that the policy rate, now at 1%, could climb above 3%, following repeated requests from the Bank of Canada’s officials that “We need higher interest rates”

Although, Royce Mendes, head of macro strategy at Desjardins Group, has said that “This is a more aggressive form of communicating that monetary policy accommodation needs to be removed. However, the question to be asked is: Is it aggressive enough when inflation is at 6.7%?

He added that, “Just talking about it might not be enough, because the longer we leave monetary policy to stimulate the economy, the more likely it is that inflation expectations … become unmoored.”

Canada’s inflation rate hit a 31-year high in March, testing the credibility of central bankers tasked with keeping price growth at the 2% midpoint of a 1%-3% range. The big risk is that the price rises will cause Canadians to lose faith in the target, with inflation drifting persistently higher.

The Bank of Canada has come out to defend itself as it noted that what it is doing is not “forward guidance,” a monetary policy tool only used twice before and only in times of crisis. Rather, it acknowledged the current policy is a departure from the usual practice of avoiding forward-looking statements on interest rates.

“Right now (the Bank of Canada’s) Governing Council states that it is important that Canadians understand that interest rates are on an upward path so that they can plan accordingly,” said Paul Badertscher, director of media relations at the central bank.

What the Bank of Canada has done in recent times – ‘SOONER RATHER THAN LATER’

The Canadian central bank has raised its policy rate twice during the current tightening cycle. But at 1%, the rate is less than half the neutral rate – the level at which economic activity is neither stimulated nor constrained – and therefore still very stimulative to an already lathered economy.

So, the Bank of Canada is being explicit in saying that  higher rates are coming as a stop-gap measure to try to cool demand until it can move into the neutral range, which will take at least four more months at the current pace, economists said.

At the Senate Committee meeting late last month, the Governor of the Bank of Canada, Macklem  mentioned that “If we don’t keep inflation expectations well anchored, inflation will get stuck. It won’t just come down.”

On the market aspect, another 50-basis-point increase is fully priced in for the June 1 interest rate decision, with money markets betting the policy rate will be around 3% by the end of this year.

Yet, some economists say actions are stronger than words, and the central bank should hike its policy rate by 75 or even 100 basis points in its upcoming decisions, and then use guidance to signal a pause.

Thus, Derek Holt, head of capital market economics at Scotiabank mentioned that, “it would be rather better if they get there sooner rather than later and on an even more expedited path since, “The economy’s characteristics now say that you should already be at neutral, if not higher.”

Previous Post

Nearly 55% of bitcoin investors in November peak, and 40% of holders are underwater -Report

Next Post

PENCOM introduces lumpsum payment to retirees with insufficient RSA balance

Related News

IMF- Global Economy growth is expected to be slow in 2023

IMF- Global Economy growth is expected to be slow in 2023

by Rate Captain
February 1, 2023
0

The International Monetary Fund on Monday 31 January 2023 published its latest economic growth projections for 2023 and 2024 in...

Nigeria’s Inflation Climbs to 19.6% in July 2022

Breaking: Nigeria’s Inflation surprisingly plunged to 21.34% in December 2022

by Rate Captain
January 16, 2023
0

The Nigeria inflation rate in December 2022 eased to 21.34% compared to November 2022 headline inflation rate which was 21.47%....

Ghana’s Inflation Rate Surges 33.9%, the highest in 21 Years

Inflation Will Defy CBN’s Monetary Policy Efforts, To Hit 21.6% – Cape

by Rate Captain
January 13, 2023
0

Cape Economic Research and Consulting has predicted a surge in Nigeria’s inflation amidst the Central Bank of Nigeria’s Monetary tightening...

CBN to Debit Banks by Thursday as it Raises Cash Reserve Ratio to 32.5%

Reps asks CBN to suspend new cash withdrawal policy, summon Godwin Emefiele

by Rate Captain
December 9, 2022
0

The House of Representatives has asked the Central Bank of Nigeria (CBN) to immediately suspend the planned implementation of its...

Next Post
PENCOM introduces lumpsum payment to retirees with insufficient RSA balance

PENCOM introduces lumpsum payment to retirees with insufficient RSA balance

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Recommended

Charges on cash transactions skyrocketed by POS agents.

Charges on cash transactions skyrocketed by POS agents.

February 3, 2023
Shell’s annual profit hits $39.9 billion.

Shell’s annual profit hits $39.9 billion.

February 3, 2023

Popular Story

  • CBN reduces over-the-counter withdrawals to N100k, N500k per week for individuals, companies

    CBN Directs Banks to Start Paying New Naira Notes Over the Counter.

    0 shares
    Share 0 Tweet 0
  • MTN Nigeria Annual profit hits N361.5 billion.

    0 shares
    Share 0 Tweet 0
  • Shell’s annual profit hits $39.9 billion.

    0 shares
    Share 0 Tweet 0
  • Naira depreciates to N749/$ in the parallel market.

    0 shares
    Share 0 Tweet 0
  • Naira appreciates to N746/$ in the parallel market.

    0 shares
    Share 0 Tweet 0
RateCaptain

RateCaptain

We bring you the most accurate in new and market data. Check our landing page for details.

  • FX Rates
  • Money Market
  • Cryptocurrency
  • Commodities
  • Corporates
  • Contact Us

Copyright © 2022 RateCaptain - All rights reserved by RateCaptain.

No Result
View All Result
  • FX Rates
  • Money Market
  • Cryptocurrency
  • Commodities
  • Corporates
  • Contact Us

Copyright © 2022 RateCaptain - All rights reserved by RateCaptain.

?>