Published on 01/27/2023 at 07:30
The Bank of Canada announced on January 25 that it would raise interest rates by a quarter of a point to 4.5%. (Photo: 123RF)
PODCAST. The Bank of Canada announced on January 25 that it would raise interest rates by a quarter of a point to 4.5%, signaling a pause in monetary tightening.
Luc Girard, portfolio manager at Noël Girard Lehoux, Desjardins Securities, explains that this decision was well received by the financial markets because the most difficult thing for a central bank is “not to proceed with the hike that would plunge the country into a serious one recession,” they concede that the pause does not necessarily mean the end of interest rate hikes.
In his view, monetary tightening could continue if inflation picks up again.
He also points out that bond markets, like equity markets, are expectation markets already looking to the second half of 2023.
Luc Girard explains that bond markets are bracing for rate cuts that would be more aggressive than economists predicted. The latter relied on one or the other descent until the end of the year.
He adds that if stock markets are correct in their expectation of a brief recession, we are heading towards the start of a new bull cycle by the end of the year that will favor cyclical sectors such as natural resources, industrials, energy, financials and more technology stocks.
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