Policymakers led by Governor Tiff Macklem increased the central bank’s overnight benchmark to 1% on Wednesday. Macklem said he expects rates will return to what they consider the “neutral range” of 2% and 3%, with policy makers prepared to move “forcefully” if needed.
The bank also said it will stop purchasing government bonds later this month to start shrinking its balance sheet, another form of stimulus withdrawal.
“The economy can handle higher interest rates, and they are needed,” Macklem said at a news conference in Ottawa.
Short-term bonds fell after the report, pushing Canada’s benchmark two-year yield to as high as 2.346%, before reversing those losses. The loonie strengthened, however, gaining 0.4% to C$1.2593 per U.S. dollar at 12:29 p.m. in Toronto trading.
About a quarter of Canadian mortgages are floating rate. Rising government bond yields and the promise of aggressive rate hikes already bit into housing demand. Getting inflation back under control should be less worrisome for a major commodity exporter like Canada but it isn’t something that can be ignored either.Click HERE to subscribe to Fuller Treacy Money Back to top