These are not the best of times for the Canadian economy.
Soaring inflation has forced the Bank of Canada to announce the highest hike in interest rate in 22 years.
The central bank today raised its benchmark interest rate by 0.5 per cent or 50 basis points. It is also the first time the Bank of Canada has raised rates by more than 25 basis points in over two decades.
With that, the Bank of Canada pushed its target for the overnight rate to 1 per cent, the Bank Rate to 1.25 per cent, and the deposit rate to 1 per cent. That was the highlight of today’s press conference by the Governor of the Bank of Canada, Tiff Macklem.
In March the Bank of Canada increased rates by 25 basis points, breaking a period of steady rates held at historic lows over the course of the COVID-19 pandemic. Today’s increase, therefore, marked the second consecutive interest rate hike in 2022.
The central bank said that the next scheduled date for announcing the overnight rate target is June 1, 2022, fuelling fears that there will be another increase in interest rate. With Canada’s inflation figure standing at 5.7 per cent, the central bank made a forecast that inflation will rise to an average 6 per cent in the first half of 2022 and remain well above the control range throughout this year.
A press statement from the Bank of Canada blamed the war in Ukraine as the cause of the hard knocks the economy is receiving.
“Russia’s ongoing invasion of Ukraine is causing unimaginable human suffering and new economic uncertainty. Price spikes in oil, natural gas and other commodities are adding to inflation around the world. Supply disruptions resulting from the war are also exacerbating ongoing supply constraints and weighing on activity. These factors are the primary drivers of a substantial upward revision to the Bank’s outlook for inflation in Canada,” the statement said.
The Bank also announced that it would end reinvestment and would begin quantitative tightening (QT), from April 25. It noted that maturing government bonds on the Bank’s balance sheet would no longer be replaced and, as a result, the size of the balance sheet would decline over time.
Canada is not alone in the sad inflation tale. Across the border in the United States, inflation rose to 8.5 per cent in March, marking the highest rise since 1981. It was also the highest rise in the consumer price index in 12 months.
However, the Bank of Canada was positive that Canada’s economy will grow by 4.25 per cent this year before slowing to 3.25 per cent in 2023 and 2.25 per cent in 2024. It was hopeful that robust business investment, labour productivity growth and higher immigration will add to the economy’s productive capacity, while higher interest rates should moderate growth in domestic demand.
In the stock markets, it has been three days of irregular trading for Canada’s main stock index. The TSX has see-sawed its way through the start of the week, buffeted in part by volatile oil and gold prices. On Wednesday, it looked like the index was on the climb.
Today the TSX was up more than 100 points in late-morning trading, buoyed by gains in the base metals, technology and industrial sectors. U.S. stock markets also rose.
The S&P/TSX composite index was up 120.74 points at 21,836.15.
In New York, the Dow Jones industrial average was up 173.62 points at 34,393.98. The S&P 500 index was up 31.56 points at 4,429.01, while the Nasdaq composite was up 204.10 points at 13,575.67.
The Canadian dollar traded for 79.24 cents US compared with 79.26 cents US on Tuesday.
The May crude oil contract was up US$1.59 at US$102.19 per barrel and the May natural gas contract was up 20 cents at US$6.88 per mmBTU.
The June gold contract was up US$4.80 at US$1,980.90 an ounce and the May copper contract was down a penny at US$4.69 a pound.
Market movers
In the past three days, our readers took a special interest in natural resources: energy and mining:
Helium Evolution CEO, Greg Robb, joined Arne Gulstene, Head of TMX Group’s Company Services, to virtually open the market.
Arena Minerals completed its first diamond drill hole at the company’s Sal de la Puna Project in Argentina.
Novo Resources agreed to sell its 15 million shares in New Found Gold for $125.9 million.
Finally, GCM Mining acquired unsecured debenture units of Aris Gold Acquisition Corp.
This week has seen a large number of companies raising capital. New announcements include:
Labrador Uranium, Magnetic North Acquisition Corp., Dynamic Technologies, Scottie Resources, Euphraxia Pharmaceuticals, BSR Real Estate Investment Trust, Gold Mountain Mining Corp., CE Brands, and Alpha Exploration
