The Bank of Canada delivered a larger-than-expected interest rate hike of a full percentage point Wednesday, bringing its overnight rate to 2.5 per cent.

It’s the largest increase since 1998 and demonstrated the central bank’s resolve in fighting surging consumer price growth.

Here’s what Bay Street had to say about the rate hike:

“The Bank of Canada saw the Fed hike 75 [basis points] and said ‘Hold my beer.’ After seeing inflation and inflation expectations rise since their last decision, central bankers saw such drastic action as necessary.”

- Royce Mendes, managing director and head of macro strategy, Desjardins Securities Inc.

We see BoC hiking rates as high as 6%: BMO’s Earl Davis

Earl Davis, head of fixed income at BMO Global Asset Management, tells BNN Bloomberg that the Bank of Canada’s 100 bps rate hike today is a jump towards acceleration and higher terminal rates. He says the BoC is still behind the curve and will have to hike rates beyond 3 per cent just to start tightening, and will eventually have to take rates higher than inflation. “The cure for inflation is a recession,” he adds, calling the higher than expected U.S. inflation data “a canary in the coal mine for Canada”.

“Where we differ significantly from the market — the market is discounting eases next year — we think there’s going to be another two percentage points of hikes next year up to six per cent. And the reason why we feel that is in all central bank hiking policies, they always have to go higher than inflation. So let’s assume inflation drops now from seven or eight per cent to five per cent, we believe they have to go higher than that to break the back of inflation. So our call is for four per cent overnight rates this year and six per cent by the end of next year.”

- Earl Davis, head of fixed income and money markets, BMO Global Asset Management

The BoC rate hike will bump the mortgage stress test higher: Realtor

Steve Saretsky, Vancouver realtor of Oakwyn Realty, joins BNN Bloomberg and says a typical five year variable mortgage will be pushed to 4.2, adding to mortgage stress, and he adds we're looking at 2023 before seeing improvements in the housing market.

“What we’ve really seen is a complete sidestep from buyers, opting to wait and watch this. So that’s why you’re seeing these 20+ year lows in home sales. That’s slowly allowing inventory to build. That inventory is building because buyer demand is so weak, it’s not building because people are running to the market trying to offload product. But I do think all these conversations, you know, the Bank of Canada has put out its housing forecast, CMHC came out with a housing forecast a couple days ago, I think they’re wildly optimistic in terms of the impending slowdown in the housing market. I think it’s going to be much more abrupt than anyone is forecasting.”

- Steve Saretsky, Vancouver realtor, Oakwyn Realty

“After being overtaken by the Fed in June, the Bank of Canada reclaimed its top gun status, with the highest policy rate among G7 countries and the biggest step in this tightening cycle, as it seeks to calm inflation fears. … With the Bank of Canada qualifying this larger step than anticipated as "front-loading," we still believe they could stop at three per cent, but the risks that the peak reaches 3.25 per cent have increased.”

- Karyne Charbonneau, executive director of economics, CIBC Capital Markets

“The Canadian dollar shot upward in the minutes after the decision. Most traders were looking for a more dovish 75-basis-point hike, but currency markets are also responding to a sharp rise in U.S. rate expectations after this morning’s much hotter-than-anticipated inflation report drove a surge in short-term yields. … We suspect today’s Bank of Canada decision will serve to anchor U.S. and global expectations even higher, partially nullifying the impact on the Canadian dollar exchange rate.”

- Karl Schamotta, chief market strategist, Corpay

“The only limited guidance [the Bank of Canada] gave is that the “pace of increases will be guided by the bank’s ongoing assessment of the economy and inflation,” suggesting that there are still at least a couple of more rate hikes ahead. Even if the bank drops back to a 50 [basis points] hike in September and a 25 [basis point] hike in October as we currently assume, that would take the policy rate to 3.25 per cent, which is probably the minimum we can expect now.”

- Stephen Brown, senior Canada economist, Capital Economics

“This big step up in rates is uncommon, so too is the economic backdrop. With the unemployment rate at 4.9 per cent, wages running at 5.2 per cent, and inflation at 7.7 per cent, the pressure on the Bank of Canada has not let up. As we recently discussed in our updated quarterly economic forecast, the hit to consumers from high inflation and rising rates will weigh on growth over the remainder of this year and into 2023. Though this raises the risk that the economy tips into recession, the bank has to accept this risk (and possible outcomes) in order to prevent high inflation expectations from becoming even more entrenched.

- James Orlando, director and senior economist, TD Economics

“At 2.50 per cent, the overnight rate is now in the middle of the two to three per cent neutral range that is assumed to neither stimulate nor meaningfully slow the economy. Tougher medicine will be needed to get inflation under control and we look for the policy rate to rise to a restrictive 3.25 per cent by October. The Bank of Canada's limited guidance seems to align with that view, saying a front-loaded tightening cycle argues for getting the policy rate "quickly to the top end or slightly above the neutral range."

- Josh Nye, senior economist, RBC Economics