Those rates will go up at least 100 basis points: David Dodge
A former head of the Bank of Canada said he thinks inflation will gradually come down from multi-decade highs and expects to see the central bank’s main policy rate rise by a full percentage point at minimum.
“I don't know (what the bank will do Wednesday), but what I do know is that over the next period, over the next year, those rates are probably going to go up at least 100 basis points,” David Dodge said in an interview.
As of Tuesday morning, Bloomberg data indicated investors see a 75 per cent probability that the central bank will raise its main policy rate by a quarter point on Wednesday to 0.5 per cent. That would be the first increase since 2018, and would happen after Statistics Canada’s most recent consumer price index showed inflation surged 4.8 per cent year-over-year in December, which was the fastest rate since September of 1991.
Dodge said he expects annualized inflation will “come down considerably” to around 2.5 or 2.75 per cent by the end of this year.
The Bloomberg data also shows investors have fully priced in at least five rate hikes this year.
Dodge, who was at the helm of the Bank of Canada from February 2001 until January 2008, said the central bank won’t be pushed around by markets and that its governing council recognizes there’s “not very much” it can do about inflation that’s being propelled by supply chain disruptions.
“The bank is going to do what's appropriate,” he said.
“It’s quite appropriate for the bank to be raising rates, but not to raise them dramatically and dramatically quickly over time, or initially, but to aim to get back to what they would consider a neutral rate, which is something in and around two or 2.5 per cent over the next 12, 18 or 24 months.”