Rate hike!

In case you weren’t sitting with a bowl of popcorn and an ‘I ♥️ quantitative tightening’ foam finger ahead of the Bank of Canada (BoC) rate hike decision yesterday, here’s the lowdown. 

What happened: As expected, the BoC delivered another oversized rate hike, bumping the overnight interest rates up to 3.25% from 2.50% (or 75 basis points, if you’re fancy like that). 

  • It’s the fifth consecutive hike since March, which also raises Canadians' borrowing costs on things like mortgages and loans to the highest levels since 2008.

Why it’s happening: Record-high inflation numbers may have pulled back last month to 7.6%, but the BoC will do whatever it can to bring it down to the 2% inflation target. 

  • The BoC points out that inflation actually increased when excluding the drop in gas prices, and that inflation in the services sector is still very much running hot.

Why it matters: Canada has officially entered something called restrictive territory—the point where high interest rates begin to weigh down on growth (which, of course, is the goal).

  • Things are already getting sluggish. The economy grew only 3.3% last quarter and early predictions say it actually contracted in July, which has stoked recession fears.

A managing director at Desjardins told the Financial Post that a trip into restrictive territory means less today than it once did, but it signals there may be little hope for a soft landing

What’s next: While many economists and other genius-types believe rate hikes may now come to an end, the BoC clapped back loud and clear by saying rates will be rising again. 

How much further, though, is still uncertain. BMO predicts a 0.50% hike for the next decision day on October 16, but another supersized rate hike (0.75%) is still on the table.