The Bank’s announcement means that the benchmark rate is now above the so-called neutral rate, the level at which economic growth is neither boosted nor constrained, which is currently between 2% and 3%.
Such a move had been widely anticipated, with Canadian Imperial Bank of Commerce (CIBC) executive director and senior economist Karyne Charbonneau indicating to Canadian Mortgage Professional in the wake of the Bank’s last announcement that the policy rate was likely to peak at 3.25%.
“We don’t think there’s space for this type of hike [one percentage point] anymore,” Charbonneau said in July. “So probably 0.75%, maybe in September, and then take a break… We think that by then, the economy will be slowing significantly on these higher interest rates and still-high inflation.”
The banking giant’s managing director and head of fixed income Ian Pollick reinforced that view in a late-August note to clients, indicating that a “narrative shift” was on the way after the Bank of Canada’s planned September hike.