Andrew Kelvin, chief Canada strategist at TD Securities, said: “It makes sense that we should see more of an inversion this cycle than we have in the last few just because there is so much more of a central bank overtightening component to this.
“That’s what happens when central banks fall behind the curve,” Kelvin added.
Along with many other central banks, the Bank of Canada maintained that inflation was “temporary” or “transitory” through the fall of 2021. It did not begin raising borrowing costs until March 2022, when inflation had grown to more than twice its 2% objective. June saw the fastest annual inflation rate in Canada since 1983 at 8.1%.
Investors have expressed concern that central banks throughout the world won’t be able to reduce pricing pressures without sparking recessions. Earlier this month, the Bank of England predicted a protracted recession. The BoC has kept up its forecast that Canada will have a soft landing where the economy will slow but not enter a recession.
In its most recent policy decision in July, the Bank of Canada brought the benchmark lending rate up 1% to 2.50%, 225 basis points above its previous level of 0.25% in March.
