Bank of Canada expected to raise rates one more time

The Bank of Canada is expected to conclude a historic year marked by high inflation and aggressive monetary policy tightening with one more interest rate hike on Wednesday.

Forecasters anticipate the central bank will raise its key interest rate, which is currently at 3.75 per cent, by either a quarter or half a percentage point next week.

Even the smaller hike would bring the interest rate to the highest it’s been since 2008. In the wake of rapidly rising inflation this year, the Bank of Canada has raised its key interest rate six consecutive times since March, racing to clamp down on inflation expectations before they became unmoored.

After raising its key rate by a historic full percentage point in July, the Bank of Canada has tapered the size of its rate hikes. In September, it announced a three-quarter percentage point rate hike, followed by half a percentage point in October.

Now, the end of the rate hike cycle appears to be near.

Bank of Canada governor Tiff Macklem said as much following the last rate decision in October.

“We are getting closer to the end of this tightening phase but we’re not there yet,” Macklem said in a news conference on Oct. 26.

TD chief economist Beata Caranci said the Bank of Canada’s recent language on the risks around rising interest rates suggests the bank is beginning to consider what the effects of the aggressive rate hikes will be.

In a speech on Nov. 22, Bank of

Canada senior deputy governor Carolyn Rogers warned recent homeowners with variable-rate mortgages would likely find the adjustment to higher interest rates painful. Rogers cited new research from the central bank that found half of variable-rate mortgages have now hit the “trigger rate,” whereby mortgage holders’ monthly payments only cover interest charges. “That’s the biggest signal I take away that they’re nearing the endpoint of their rate hike cycle,” Caranci said.

Economists generally say interest rate hikes can take one to two years to be fully felt in the economy.