How high will the Bank of Canada go on interest rates?

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The Bank “does not care” about inflation today – but has its sights set on inflation expectations, or what Canadians expect price growth to be in the near future, Tal said.

“They have to show us that they mean business. That’s why they raised interest rates by 100 basis points; that’s why later this month, they will raise by another 50 basis points,” he said. “They want to make sure that you and I understand that they’re not behind the curve, and they’re going to fight inflation and bring it to 2% regardless of what happens.”

Canada’s annual inflation rate fell for a third consecutive month in September, although it inched down by just 0.1% over August’s result and was 0.2% higher than economists had anticipated.

The COVID-19 pandemic has played a huge role in contributing to that ballooning inflation, and Tal indicated that while it will remain a factor in the months ahead, it’s unlikely to have as severe an impact on the economy as during 2020 and 2021.

“Yes, COVID will be with us even next year, but it will not dominate us. We are going to see a transition, and it’s happening maybe already, from a pandemic to an endemic,” he said. “The virus is not dead – [it] will be with us, but we will have enough ammunition to fight it.

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