And another twist. The Bank of Canada raised the benchmark rate again on Wednesday. This investment brake could plunge the country into recession and more and more critical observers are worried about it. Governments try to be reassuring. As expected, the Bank of Canada raised its benchmark rate by half a percentage point. It has gone from 0.25% to 3.75% since March, making it one of the fastest monetary strengthening cycles in its history.
By thus curbing access to credit, the central bank restricts the economy so that runaway inflation stops. “The Bank expects GDP growth to slow from 3.25% this year to just under 1% next year and 2% in 2024,” its update said in a statement.
Regardless of whether the new policy rates are the cause or not, inflation in Canada has already started to fall after 10 consecutive months of hikes. The rise in commodity prices fell from 8.1% to 6.9% over the past three months. Food prices, on the other hand, rose 11.4% year-on-year, the fastest pace since August 1981.
The Bank of Canada expects the rise in the cost of living to slow to 3% by the end of 2023, before returning to the 2% target in 2024. Upon his arrival in the municipalities, Prime Minister Justin Trudeau said he had tried to be reassuring in the face of prices that continue to swell and a slowing economy.
His C-30 bill would double the GST tax credit and bring $ 2.5 billion back into the pockets of 11 million households. A second piece of legislation, Bill C-31, would send a check for $ 500 to tenants who pay too much rent, as well as offer a dental benefit to care for children under the age of 12. “We are providing the kind of support that will make a huge difference,” she briefly told reporters. Prime Minister François Legault also recalled the government’s financial assistance to him, in a context in which “the economic situation is deteriorating”.
In a press conference, he reaffirmed that his government wanted to limit any possible increase in government tariffs to 3%, such as the cost of license renewal, registration fees, the Hydro-Québec bill, the guard, etc. At the same time, as promised in the campaign, he plans to send a check for $ 600 to people with incomes below $ 50,000 and $ 400 to those earning between $ 50,000 and $ 100,000. Quebecs aged 70 and over should also receive a check for $ 2,000.
Critics merge
The opposition on Parliament Hill harshly criticized the Bank of Canada’s decision, fearing that the cure (recession) was worse than the disease (inflation). “Too many Canadians are on the verge of bankruptcy and this new increase will bring them closer,” said Pierre Poilievre, leader of the Conservative Party of Canada.
Instead, New Democratic Party leader Jagmeet Singh accused the government of letting the central bank handle the inflation itself. “Currently, corporate profits are growing twice as fast as inflation, but workers’ wages are not keeping up. Over the past six months, the liberal government has spent more time congratulating itself than fighting inflation, ”he wrote.
Conversely, the Bank of Canada warned the public that this key rate hike would not be the last. Several economists estimate that a 4% rate could be reached during the next update, scheduled for December 7th.
This rate is still far from the peak of 20% reached in 1981, emphasizes economist Stephen Gordon of the Interuniversity Center on Risk, Economic Policy and Employment. “The interest rates we had in the 2000s were abnormally low. To some extent, the rates we see today are a bit of a return to normal. “
With Marie Vastel and The Canadian Press
