Liftoff! Bank of Canada raises rates — Implications for the broader market and investors

The Bank of Canada (BoC) raised its overnight target interest rate by 25 basis points (0.25%) to 0.5% on Wednesday, March 2. This marks the first time since 2018 that the BoC has raised rates. It is raising rates because of the strong economic growth in recent quarters; inflationary pressures that have been higher and more persistent than originally thought, pushing inflation above the bank's 2% target; and consumer spending that remained resilient even as omicron case counts rose. The bank projects additional rate hikes will be necessary to tame inflation, but it noted that the rate-hiking path is not set in stone. The Ukrainian conflict is likely to add to uncertainty about commodity prices and global economic growth in the long run, with flight paths already readjusting to sanctions and restrictions imposed by the wider global community. Here's our three key takeaways:
Source: FactSet, Statistics Canada. This chart shows the recent rise in Canada immediate interest rate after BoC announced the hike on Wednesday March 2nd.
This chart shows that the TSX has been 1 of only a handful of major indexes up for the year with other major U.S. and international Large-Cap indexes lower.
Source: FactSet. Past performance does not guarantee future results. Market indexes are unmanaged and cannot be invested into directly.
This chart shows that the TSX has been 1 of only a handful of major indexes up for the year with other major U.S. and international Large-Cap indexes lower.
Expect periods of heightened volatility stemming from tighter monetary policy, a Russia/Ukrainian conflict, and fluid inflationary pressures that will alter central-bank glide paths for rate hikes.
Look for opportunity in value and cyclical sectors for your portfolio where appropriate. Your financial advisor can help with this process, looking for opportunities while staying true to your personalized goals, risk tolerance and time horizon.
Sloane Marshall,
Associate Analyst
Source: 1. FactSet. The TSX is an unmanaged index and cannot be invested in directly. Past performance is not a guarantee of future returns.
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