The move is expected to point to a much more aggressive rate hike path for the rest of the year.
There is a sign in the financial district of Toronto.
The photo was taken by Stephanie Foden.
The Bank of Canada hiked its interest rate for the first time in 22 years on Wednesday, a move that came as no surprise to economists and bank watchers who had widely anticipated the increase. It is not certain what will happen next.
The move included announcing that it would begin quantitative tightening or reduce the amount of government bonds held on its balance sheet, as an acknowledgement of the need to move.
In addition to raising the overnight rate to one per cent, the bank also increased its projection for GDP growth to 4.2 per cent this year, from the initial four per cent laid out in its January monetary policy report and bumped up inflation expectations to a 5.3 per cent average from 4.2 per cent.
The revisions come as little surprise given all that has transpired since the previous estimates were released.
The Bank of Canada is more optimistic about growth in 2023 than we are.
The Bank of Canada is not expected to keep up with the Fed in terms of raising rates.
Paul Ashworth, chief North America economist at London-based research firm Capital Economics, shared the view that Canada's rate hike path would be lower going forward.
Ashworth argued in a note Wednesday morning that housing vulnerabilities would keep the Canadian central bank from getting a higher policy rate. The Fed Funds Rate is expected to peak at 3.38 per cent.
Household debt burdens are higher and rate-sensitive residential investment accounts for a bigger share of the economy since housing is more over-valued north of the border.
Mortgage debt holders will be closely watched in the months ahead because of the pressure climbing rates are expected to put on housing.
RatesDotCA expert and licensed mortgage agent Sung Lee said in an e-mail to the Financial Post that higher and faster rate hikes will affect mortgage affordability for a significant population of homebuyers.
The Bank of Canada's move today could point to a much more aggressive rate hike path for the rest of the year, according to analysts at LowestRates.ca.
Rates are going up this year, but we don't know what will happen next year. This creates a bit of a roller coaster experience for current and would-be homeowners.
Zlatkin said that the increased costs have a real impact on homeowners.
Email: shughes@postmedia.com
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