The Bank of Canada is widely expected to keep interest rates on hold Wednesday as a string of aggressive hikes has yet to be fully reflected within the economy, one expert says.
The bank’s current overnight rate sits at 4.50 per cent as it continues to pursue its two per cent inflation target, while also keeping an eye of the country’s financial system following the banking crisis south of the border. Regardless of how the central bank chooses to proceed, Royce Mendes, managing director and head of macro strategy at Desjardins, said he is anticipating a rocky ride ahead — one that the bank should prepare for.
“We haven’t seen the full impact of past monetary policy tightening and I do expect that overtime we’re going to see more volatility in the market,” he said.
Mendes added that this is something policymakers need to account for.
One way the bank can do so, beyond keeping rates on hold for now, is to ensure the public that they have the tools needed to support the financial system.
"They have the financial system tools, liquidity injection tools, that they can use to focus on the banking system," he said.
This would help support markets and banks ahead of any possible turmoil ahead, he added.
“That’s a distinction that they’re going to want to drive home tomorrow,” he said.
Advertisement