The central bank has kept the policy rate frozen at 4.5% in its two most recent meetings
Taking current market conditions into account, an additional 25-basis-point rate hike by the Bank of Canada might be needed so the central bank can reassure Canadians that it can reliably fulfill its mandate, according to Jean-François Perrault, chief economist and senior vice president at Scotiabank.
Perrault said that the 4.4% annual inflation rate seen in April was a stronger-than-expected result, and was still considerably higher than the 3% level that the central bank is expecting to be reached by mid-2023.
The central bank has kept the policy rate frozen at 4.5% in its two most recent meetings. The next rate announcement is scheduled on June 7.
“The risk of not doing enough, effectively implies that inflation doesn’t come down as much as we want, and that at the end of the day, you might need to do even more on the rate side later on to bring inflation down,” Perrault said in an interview with BNN Bloomberg.
“Twenty-five basis points doesn’t make a huge difference in anybody’s pockets, but it helps solidify the Bank of Canada’s message.”
Veronica Clark of Citigroup Inc. also recently called for a similar rate hike, noting that the latest consumer price index justifies the increase.
“The Bank of Canada is literally saying we’re waiting to see if we’ve done enough, and none of the data is telling you that you’ve done enough,” Clark said in a phone interview with Bloomberg.
“It’s been hard for markets to imagine another hike in Canada. But the Bank of Canada is first and foremost an inflation-targeting central bank, and inflation looks sticky, strong and much higher than 2%.”