What the Bank of Canada thinks about your money

This morning we heard from the Bank of Canada, which continues to expect that, while we could see more hikes, rates won’t necessarily go much higher. In short, the bank’s view isn’t good news for savers.

The central bank raised its target for the benchmark interest rate 0.25 percent today, to 1.25 percent, from 1 percent.

The median forecast of the 52 analysts and forecasters surveyed by Bloomberg News now calls for the bank to raise rates three more times over the next year and two additional times over the next two years, to 1.75 percent by September 2021.

The central bank continues to expect that “the economy will continue to grow at a strong pace” and the current “affordability and supportive monetary policy settings” will “prolong the economy’s expansion.” The bank left its outlook unchanged in October.

“Going forward, while the near-term upside and downside risks to inflation have diminished somewhat, both risks remain roughly balanced and further evidence of normalization will be required,” the central bank said.

The bank’s forecast for inflation, as measured by the “breakeven rate,” has strengthened and that, along with very tight financial conditions, is the “main factor” driving today’s increase. “If commodity prices were to recover more quickly than anticipated, it would likely modestly help inflation return to target sooner than currently expected,” the bank said.

That’s bad news for savers, who are seeing zero or negative returns in the bank’s own two main deposit categories. For a savings account, the rate is now in negative territory, after dipping below zero in September for the first time since 2012. In Canada’s market for taxable bonds, the median rate has fallen from 1.63 percent in September to 1.43 percent in October. The average for insured bonds went from 2.82 percent in September to 2.67 percent in October.

Meanwhile, for longer-term maturities, the forecast of inflation has recently shifted into positive territory.

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