The Toronto skyline in Canada

Canada Monetary Policy June 2022

Canada: Bank of Canada continues to raise rates in June

On 1 June, the Bank of Canada (BoC) raised its target for the overnight rate to 1.50% from 1.00%, marking the third consecutive rate hike this year. The Bank also said it was continuing its Quantitative Tightening (QT) policy by no longer reinvesting maturing government bonds.

The Bank’s decision was aimed at taming multi-decade high inflation. Moreover, the BoC judged there to be excess demand in the economy and highlighted the pick-up in wage growth and widespread labor shortages, providing further motivation for the hike.

Forward guidance grew more hawkish, with the Bank now stating that it was “prepared to act more forcefully if needed” in order to ensure inflation converges to the 2.0% target. Our panelists forecast well over 100 basis points of additional tightening by the end of the year.

On future rate hikes, analysts at ING remarked:

“Elevated inflation argue for another ‘forceful’ 50bp hike at the next meeting and probably the meeting after that. We certainly see greater upside for BoC rates than for the Fed funds rate in the U.S. with the Canadian economy experiencing an even hotter jobs market and property market than in the U.S. while the economy is additionally boosted by its strong commodity producing sectors. We see the Bank of Canada hiking rates to 3.5% in early 2023.”

Analysts at Desjardins see even more aggressive near-term tightening:

“The Bank of Canada needs to get a handle on prices soon. The acceleration in inflation will likely force the Bank of Canada to raise rates a further 75bps, a jumbo-sized move central bankers should have made earlier this month.”

The BoC’s next policy announcement will be on 13 July.

Free sample report

Access essential information in the shortest time possible. FocusEconomics provide hundreds of consensus forecast reports from the most reputable economic research authorities in the world.
Close Left Media Arrows Left Media Circles Right Media Arrows Right Media Circles Arrow Quote Wave Address Email Telephone Man in front of screen with line chart Document with bar chart and magnifying glass Application window with bar chart Target with arrow Line Chart Stopwatch Globe with arrows Document with bar chart in front of screen Bar chart with magnifying glass and dollar sign Lightbulb Document with bookmark Laptop with download icon Calendar Icon Nav Menu Arrow Arrow Right Long Icon Arrow Right Icon Chevron Right Icon Chevron Left Icon Briefcase Icon Linkedin In Icon Full Linkedin Icon Filter Facebook Linkedin Twitter Pinterest