Ukraine war may slow, but won’t stop, Bank of Canada interest rate hikes: experts

Uncertainty around the length and economic impact of Russia's war in Ukraine won't halt an interest rate hike on Wednesday but could slow future increases, experts say.

The Bank of Canada is likely to forge ahead with its first interest rate increase in years on Wednesday, economists predict, though uncertainty tied to the war in Ukraine could put the pace of future rate hikes into question.

The central bank said in January that its special guidance around the COVID-19 pandemic, which kept its key overnight rate at 0.25 per cent for much of the past two years, has ended.

Senior bank officials strongly signalled rates need to rise in an effort to tamp down on inflation, which hit 5.1 per cent in Canada last month a high not seen in 30 years.

Economists who spoke to Global News expect a series of increases from the Bank of Canada this year, likely starting with 25 basis points on Wednesday, though the length of the conflict in the Ukraine could affect that roadmap later in the year.

Beata Caranci, chief economist with TD Bank, told Global News on Tuesday that she still expected the telegraphed 25 basis point hike on Wednesday.

Though Russia’s invasion has already hit markets hard, sending prices soaring on commodities such as oil and wheat, Caranci said the long-term impact of the war isn’t yet known and won’t affect the Bank of Canada’s immediate decision making.

Should the conflict persist into the second quarter of the year, the bank will have to start baking the war’s economic impact into its outlook, she said.

“If we continue to see high financial market stress as we get into April and May, at that point, that’s where it starts to become a greater economic drag,” Caranci said in an interview.