[Asia Economy Reporter Lee Ji-eun] The Bank of Canada (BOC) has indicated that it will be the first among the Group of Seven (G7) countries to halt its key interest rate hikes. As inflation worldwide shows signs of easing recently, this decision by the BOC is being analyzed as a signal marking the end of the monetary tightening cycles across various countries.
According to Bloomberg, on the 25th (local time), the BOC decided at its regular monetary policy meeting to raise the key interest rate by 0.25 percentage points to 4.5%. The Bank of Canada had previously raised rates eight consecutive times since last year to curb inflation, bringing the key rate up to 4.25%.
However, the BOC expects prices to fall significantly due to stabilized supply chains and declining energy prices, and stated that if conditions align with its own forecasts, it may hold rates steady at the current level. The BOC projects that the consumer price index (CPI) inflation rate, which was 6.3% as of December last year, will decline to the 3% range by mid-2023 and further down to the target 2% range in 2024.
The market is closely watching whether central banks in other countries will follow Canada’s lead and pause their interest rate hikes. In particular, there are forecasts that the U.S. Federal Reserve (Fed) may mention a pause in rate hikes at the Federal Open Market Committee (FOMC) meeting next month. The Wall Street Journal (WSJ) reported on the 22nd that "Fed officials may signal their intention to continue raising rates while also exploring the timing of a pause in rate hikes in the statement following the FOMC meeting."
In the Eurozone, the UK, and other regions, CPI inflation rates have peaked in the second half of last year and are now uniformly declining. Among these, the UK’s real estate market has recently frozen, leading to speculation that rate hikes may be paused within the first half of this year. Bloomberg noted, "Other countries are watching the Bank of Canada’s decision closely, and the U.S. is also adjusting the pace of rate hikes as its key interest rate approaches a peak."
Meanwhile, according to the Chicago Mercantile Exchange (CME) FedWatch, the probability that the Fed will raise the key interest rate by 0.25 percentage points at the first FOMC meeting of this year stands at 98.3% in the federal funds (FF) futures market.
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