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Bank of Canada hikes rate for first time since 2018

Central bank raises rate 25 basis points to 0.50 per cent
Bank of Canada governor Tiff Macklem

The Bank of Canada has hiked its overnight for the first time in three and half years following 2021 proved to be a robust year for the economy.

The central bank’s benchmark rate had remained at 0.25 per cent since the outset of the pandemic, matching record lows not seen since the 2008 financial crisis.

Bank of Canada governor revealed early Wednesday the rate was going up 25 basis points to 0.50 per cent.

A day earlier, data from Statistics Canada showed real GDP grew at an annual rate of 4.6 per cent in 2021. That comes after growth declined 5.2 per cent a year earlier amid fallout from the pandemic.

The general consensus among economists leading into Wednesday’s rate announcement was that the Bank of Canada would begin hiking rates again for the first time since October 2018.

But Russia’s invasion of Ukraine threw some uncertainty into the global economy over the past week, which Bank of Canada governor Tiff Macklem made note of in the rate announcement.

“The unprovoked invasion of Ukraine by Russia is a major new source of uncertainty,” he said in the announcement.

“Prices for oil and other commodities have risen sharply. This will add to inflation around the world, and negative impacts on confidence and new supply disruptions could weigh on global growth. Financial market volatility has increased. The situation remains fluid and we are following events closely.”

Josh Nye, a senior economist at RBC, said he does not believe geopolitical developments preclude a follow-up hike in April at this stage.

“Nor do they argue for the more aggressive tightening path that markets continue to price,” he said in a note.

BMO economist Benjamin Reitzes echoed those sentiments in a note to investors, but qualified that by stating the assumption is based on global conditions not deteriorating rapidly.

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