The Bank of Canada has today announced a 100-basis-point hike in the overnight rate, and strongly suggested that further increases would be coming. This is the fourth consecutive increase since March, and the largest one to date. Observers had widely expected a 75-point announcement.

Increasing the rate has been the traditional response to rising inflation, which tends to attribute inflationary pressure to rising wages. However, as experts such as Prof. Robert Reich, former U.S. Secretary of Labour, have pointed out, wages are not keeping up with inflation, and other factors such as supply chain disruption and war in Ukraine are also contributing – factors which will not respond to interest rate hikes.

“Inflation is a major concern for businesses right now,” said GNCC CEO Mishka Balsom, “but an economic contraction would be a bigger one. Although the Bank of Canada has stated that it anticipates a slowing of economic growth, they do not anticipate a recession. RBC, conversely, has recently stated that it fully expects a ‘short-lived’ recession in 2023.”

“If a recession is coming, we hope that it is short and mild,” said Balsom. “Raising interest rates could cool an overheating economy, but there are many other global economic pressures which we must account for as well. It is always easier to slow an economy than to stimulate one. We continue to monitor the effects of rising interest rates on our members in all economic sectors.”