Bank of Canada signals slower pace of rate hikes

The Bank of Canada signalled it’s nearing the end of its interest-rate hiking campaign, potentially providing a model for counterparts elsewhere as recession risks mount.

The central bank unexpectedly slowed its pace of rate increases, amid concern Canada’s economy is already flirting with a recession. Governor Tiff Macklem boosted the benchmark overnight lending rate by 50 basis points, instead of the three-quarter move expected by markets and most economists.

Canada’s central bank had got out ahead of peers in boosting its key rate by a full percentage point back in July, a magnitude others stopped short of. Now it joins Australia’s central bank in easing off somewhat on the brakes — with officials in both countries sharing worries about the impact of higher borrowing costs on highly indebted households.

Traders are still fully expecting the US Federal Reserve to lift rates by 75 basis points next week for a fourth straight meeting. But Canada’s shift illustrates that central banks around the world are getting closer to the end of the tightening cycle, with policymakers hoping the cumulative impact of their efforts will soon start showing up in inflation data.

—Bloomberg