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Economic update: Bank of Canada July rate increase

While Canadians just saw an interest rate increase in June 2023, the Bank of Canada announced another rate hike in in July. Our colleagues at NEI Investments released an update on the recent increase and the state of the Canadian economy.

Bank of Canada hikes its rate by 25 basis points

On Tuesday July 12, the Bank of Canada (the BoC) announced another interest rate increase of 25 basis point (bps), following its 25-bps increase in June. This lifts the benchmark interest rate to 5%, bringing the benchmark borrowing costs to their highest in 22 years. This announcement was in line with expectations, as the majority of analysts believed additional rate hikes were coming since the BoC resumed raising rates last month after a brief pause in January.

Inflation has been running above the BoC’s 2% target for 27 consecutive months. Although headline inflation has declined in recent months, BoC Governor Tiff Macklem noted that recent declines were primarily due to lower energy prices and base effects, rather than easing inflation due to restrictive policy rates. The BoC said it expects the annual rate of inflation to remain around 3% for the next year, projected to decline to the bank’s 2% target by the middle of 2025. While the announcement didn’t mention future rate hikes specifically, this leaves the door open for further tightening in September.

Monetary tightening has not had much of an impact on growth, as the BoC also revised its 2023 growth forecast from 1.4% in April to 1.8%, while slightly lowering for the forecast in 2024 and 2025. Inflation and interest continue to be a key issue in 2023.

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This material is for informational and educational purposes and it is not intended to provide specific advice including, without limitation, investment, financial, tax or similar matters. The views expressed herein are subject to change without notice as markets change over time. Information herein is believed to be reliable but NEI does not warrant its completeness or accuracy. Views expressed regarding a particular security, industry or market sector should not be considered an indication of trading intent of any funds managed by NEI Investments. Forward-looking statements are not guaranteed of future performance and risks and uncertainties often cause actual results to differ materially from forward-looking information or expectations. Do not place undue reliance on forward-looking information

NEI Investments is a registered trademark of Northwest & Ethical Investments L.P. (“NEI LP”). Northwest & Ethical Investments Inc. is the general partner of NEI LP and a wholly-owned subsidiary of Aviso Wealth Inc. (“Aviso”). Aviso is the sole limited partner of the NEI LP. Aviso is a wholly-owned subsidiary of Aviso Wealth LP, which in turn is owned 50% by Desjardins Financial Holding Inc. and 50% by a limited partnership owned by the five Provincial Credit Union Centrals and The CUMIS Group Limited.

Credential Qtrade Securities Inc. and Northwest & Ethical Investments L.P. are all wholly owned subsidiaries of Aviso Wealth Inc.