The Bank of Canada is expected to keep interest rates on
hold Wednesday as previous hikes have yet to fully impact the economy,
according to experts. The current overnight rate sits at 4.50% as the bank
works towards its two percent inflation target and monitors the country’s
financial system after the banking crisis in the US.
Royce Mendes, managing director and head of macro strategy
at Desjardins, has predicted a rocky ride ahead, and that the bank should prepare
accordingly. “We haven’t seen the full impact of past monetary policy
tightening, and I do expect that overtime we’re going to see more volatility in
the market,” Mendes stated.
Mendes also suggests that the bank should assure the public that they have the tools necessary to support the financial system, beyond keeping rates on hold for now. “They may concentrate on the banking sector by using the tools available to them for injecting liquidity into the financial system, he claimed. This would strengthen banks and markets in advance of probable future turbulence.
Mendes emphasizes the importance of the bank driving home
this distinction during its announcement, stating “That’s a distinction that
they’re going to want to drive home tomorrow.”
The Bank of Canada has been working to navigate a balancing
act between supporting the country’s economic recovery and keeping an eye on
rising inflation rates. Its decision on interest rates will be closely watched
by both investors and the public, as it could have significant implications for
the future of the Canadian economy.
We haven’t seen the full impact of past monetary policy
tightening and I do expect that over time we’re going to see more volatility in
the market,” he said.
Mendes added that policymakers need to take this into
account and suggested that the bank could reassure the public by demonstrating
that they have the necessary tools to support the financial system.
“They have the financial system tools, liquidity injection
tools, that they can use to focus on the banking system,” he said.
This would help support markets and banks ahead of any
possible turmoil, he said.
“That’s a distinction that they’re going to want to drive
home tomorrow,” he said.
Despite the warnings of potential volatility ahead, the bank
is expected to maintain a cautious approach in its decision-making, as it seeks
to balance inflation targets with economic growth and stability. The Bank of
Canada has been gradually increasing interest rates over the past few years in
response to a strong Canadian economy, but the recent turmoil in global markets
has prompted some experts to call for a more cautious approach.
For now, it appears that the bank will continue to focus on
ensuring financial stability and maintaining confidence in the Canadian
economy, while keeping a watchful eye on any potential risks that may arise in
the months ahead.
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