Rate hike is nail in the coffin that will bury Canada’s debt-heavy economy – by David Rosenberg (Financial Post – June 8, 2023)


The Bank of Canada did exercise patience, but not enough

The Bank of Canada pulled an RBA and hiked rates on June 7 with the market mostly (call it 60-40) priced for no move and more than 80 per cent of Bay Street economists believing the central bank would hold its fire. This is the same Bank of Canada that surprised the markets at half the meetings in 2022, so it really is back to governor Tiff Macklem’s modus operandi.

The tone was hawkish as the press statement left the potential for another move at the July meeting wide open: the futures market is now priced 70 per cent of the way for another 25 beeper. This even had an impact on United States Federal Reserve pricing:

the odds of a rate hike in June are now up to 33 per cent; these odds were at 22 per cent before the Bank of Canada hike. And the odds of a second Fed rate hike in July are now at 18 per cent … these market-based probabilities were sitting at 12 per cent before the Canadian central bank’s announcement.

The yield on the two-year Government of Canada bond soared from 4.36 per cent at the time of the meeting to 4.59 per cent by mid-afternoon (and it was right then that the U.S. Treasury yield curve gapped higher as well).

For the rest of this article: https://financialpost.com/news/economy/bank-of-canada-rate-hike-nail-in-coffin-economy