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Economists don't believe the Bank of Canada is ready to hit the brakes on its interest rate-hiking cycle just yet, even as signs grow that inflation is easing and the economy is softening.
Canada's central bank is expected to announce its eighth consecutive rate increase on Wednesday, with most commercial banks forecasting a raise of a quarter-percentage point. That would bring the central bank's key interest rate to 4.5 per cent, the highest it's been since 2007.
Although headline inflation slowed noticeably last month, Royce Mendes, Desjardins managing director and head of macro strategy, said the labour market is still hot and underlying inflation pressures are still "sticky."
"I think (the bank will) use all of that to justify the further rate increase," Mendes said.
Last month, the unemployment rate fell to five per cent, slightly above the all-time low of 4.9 per cent.
After raising rates again in December, the Bank of Canada signalled it was open to pressing pause on its aggressive rate-hiking cycle, depending on upcoming economic data releases.
The Bank of Canada is likely encouraged that headline inflation is slowing. After peaking at 8.1 per cent in the summer, the annual inflation rate has cooled to 6.3 per cent in December.
The Bank of Canada will also release its quarterly monetary policy report on Wednesday, which will provide updated forecasts for economic growth and inflation.
The Canadian Press
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