As Bank of Canada Sprints To Neutral, Bets Of Recession Climb

• Canada's central bank has signaled plans to race ahead with a series of oversized hikes to curb inflation, upping the risk of plunging the economy into a recession, say, economists, though worth it if it keeps rapid price rises from becoming entrenched. 
• The Bank of Canada last week raised its policy interest rate to 1.5% from 1.0%, its second consecutive 50-basis-point hike, and said it was ready to act "more forcefully" if needed to fend off "galloping inflation," already at a 31-year high. 
• That could mean more moves before pausing, larger than 50-bp increases, or an end rate somewhere above neutral - the 2%-3% range where interest rates neither stimulate nor weigh on growth, Deputy Governor Paul Beaudry said. 
• The housing market, a key driver of Canada's economy, has cooled sharply from February's peak, as rate hikes cut into buying power. The country's export volumes are also down 4.9% so far this year, a decline to date masked by hot commodity prices. Still, inflation is running at 6.8% and set to rise further, Canada's jobless rate is at a record low and businesses report more demand than they have the capacity to meet, bolstering the case for a forceful response. 
• Money markets are betting the Bank of Canada will raise its policy rate to 3.25% by the end of this year, the highest level since 2008 and three full percentage points above January's 0.25%. That rapid pace could shock Canada's economy, which has the highest level of household debt in the G7.

(Source: Reuters)