Bank of Canada set to deliver even bigger interest rate hike on Wednesday
On Wednesday, the Bank of Canada is widely anticipated to increase its benchmark interest rate by 75 basis points as it continues its aggressive strategy to attempt to control the rising price of goods.
After two straight 50 basis point increases, the significant rise would be the biggest since 1998. The central bank's policy interest rate would reach 2.25 percent for the first time since 2008 with a 75 basis point rise.
Since the Bank's most recent decision in June, a number of economic data have been reported, which have increased expectations for a significant increase.
The increase in inflation in May was 7.7%, exceeding economists' predictions and making it the largest annual increase since January 1983.
Additionally, according to two studies conducted by the Bank of Canada, consumers and companies expect high inflation to last longer. This raises worries that consumers' and businesses' expectations of inflation are hardenings.
According to the central bank's quarterly business outlook poll, businesses now anticipate greater short-term inflation as well as longer-term inflation rates.
In addition, Statistics Canada's Friday publication of employment statistics revealed that the labor market remained tight despite a record-low jobless rate and rising salaries.
A number of central banks throughout the world, including the Bank of Canada, have started to aggressively tighten monetary policy in response to surging inflation.
The neutral range, when the interest rate is no longer stimulative, is thought by the bank to be between two and three percent.
However, a 75 basis point increase is expected to increase pressure on Canada's heavily indebted citizens and the property market.