Bank of Canada | The key rate is likely to increase on Wednesday

The much-anticipated announcement will be followed by a speech by Central Bank Senior Deputy Governor Caroline Rogers.

In July, the Bank of Canada raised its key rate by one percentage point to 2.50%, its largest increase since August 1998. Many economic analysts expect it to raise rates again on Wednesday, perhaps to combat inflation at a decade-high of 0.75.

Inflation rose to 7.6 percent in July from 8.1 percent in June. Despite the slight slowdown, Bank of Canada Governor Tiff Macklem said in an op-ed on August 16 that inflation remains a major concern and that he has decided to cut rates to 2%.

Meanwhile, by increasing the cost of borrowing, the central bank hopes to reduce spending in the economy and reduce inflation.

Karyne Charbonneau, managing director of economics at CIBC, believes Wednesday’s key rate hike could be the last for some time. In his opinion, by next month, Canada’s financial situation will be comfortable enough to give the bank a break.

Economist David Macdonald of the Canadian Center for Policy Alternatives warns that interest rate hikes at a faster pace could have serious consequences due to high levels of corporate and household debt.

Macdonald notes that private sector debt is 225% of Canada’s gross domestic product (GDP). By comparison, the last time the Bank raised interest rates quickly, private sector debt stood at 142% of GDP.

Company quoted in this Dispatch: CIBC (TSX: CM)