'Price Surge'... Canada Ends Quantitative Easing Early, Brazil Raises Interest Rates for 6th Consecutive Time

Tiff Macklem, Governor of the Bank of Canada
[Photo by Reuters Yonhap News]

[Asia Economy reporters Byunghee Park and Hyunwoo Lee] The Bank of Canada abruptly decided to end its quantitative easing (QE) program early at its monetary policy meeting on the 27th (local time). On the same day, the Central Bank of Brazil sharply raised its benchmark interest rate by 1.5 percentage points from 6.25% to 7.75%. With rising inflation risks, both central banks have taken strong monetary policy measures. The news, coming ahead of the Federal Open Market Committee (FOMC) meeting of the U.S. Federal Reserve scheduled for July 2-3, has further heightened tensions in the financial markets.

According to Bloomberg and other sources, the Bank of Canada announced it would halt its quantitative easing policy, which involved purchasing assets worth 2 billion Canadian dollars (approximately 1.8966 trillion KRW) weekly. Market experts had expected the asset purchase volume to be reduced to 1 billion Canadian dollars, but the central bank took the bold step of stopping purchases altogether.

The reason is the risk of rising prices. The central bank stated, "Supply chain disruptions and rising energy prices, which increase inflationary pressures, are expected to be stronger and more persistent than anticipated."

The timing of the benchmark interest rate hike, initially expected in the second half of next year, is also likely to be moved forward. Tiff Macklem, Governor of the Bank of Canada, said, "We will need to consider raising the benchmark interest rate sooner than expected," adding, "If the economy recovers and inflation rises, there is no need to keep the benchmark interest rate low any longer."

Trend of Brazil's Base Interest Rate

The Central Bank of Brazil also decided on a larger-than-expected benchmark interest rate hike (market expectation was 1 percentage point). This is due to Brazil experiencing severe inflation, with the September inflation rate reaching 10.25%.

This is the first time in five and a half years since February 2016 that Brazil's inflation rate has recorded double-digit growth. The Central Bank of Brazil has raised the benchmark interest rate in all six monetary policy meetings since March. In its third-quarter economic outlook report released at the end of last month, the Central Bank of Brazil significantly revised its annual inflation forecast for this year from 5.8% to 8.5%.