Document Highlights
The Bank of Canada will increase interest rates four times in 2022, with the first hike having already taken place in March.
Russia’s invasion of Ukraine has placed the Bank in a difficult position. On one hand, it needs to raise rates to control inflation. On the other hand, if the war lasts longer than anticipated, it could indirectly impact the Canadian economy, which could force the Bank to pull back on interest rate increases.
The loonie will trade in the US$0.79–US$0.81 range for the remainder of 2022 before easing back down in early 2023.
The U.S. Federal Reserve raised its policy interest rate 25 basis points at its March meeting. Same as for the Bank of Canada, we expect the Fed to increase rates four times in 2022.
The Bank of England increased its key target rate to 0.75 per cent from 0.5 per cent at its March meeting. However, market analysts have lowered the odds of another hike within six months, given the British central bank’s more cautious tone.
Unlike most of its counterparts, the European Central Bank did not increase rates at its March meeting.
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