Almost everyone that I talk to who are aware of the wider macroeconomic policy and national monetary policy are saying one thing that is common. The Bank of Canada is expected to increase the interest rate and that too right after the end of this fiscal year. It is funny how all the market participants are expecting this interest rate to get hiked significantly this year. They are not wrong. The Bank of Canada has indicated multiple times in various forums that they are thinking about raising the rates and have warned market participants to not get too comfortable with the current rates. 

![image 2.png](https://images.hive.blog/DQmRPY3JaQVaaEJ7om7yDn6JECxamZeF3mLaNN9KEZ6asif/image%202.png)
 

There are reasons behind the speculation and they sound legit. 

> Omicron has the negative impact but not as big as the rate of inflation 

One of the reasons the Bank did not raise the interest rate recently was the fear the market had about the new Covid wave. The virus impacted the economy and the province and the country shut down the market to stop the spreading of the virus. Turns out the economic impact of Omicron is small compared to the larger impact inflation is bringing into the Canadian economy. 

Statistics Canada reported on Wednesday that the annual rate of inflation hit 4.8% in December. It does not sound much but that is the highest level of inflation in Canada in 30 years. The inflationary pressure at this point cannot be ignored at all. The authorities will have to decide on what their next steps are to respond to this extraordinary inflation rate. 

Market participants understand this and they also are expecting the rate to increase as a response to these growing rates. I have no idea how much they would raise but the speculation in the market suggest that the rate will be increased by 75 basis points by the end of 2022 fiscal year. The first hike could come as early as March this year. 

 

> Housing market is breaking all records 

The housing market is breaking all records fueled by these unprecedented low interest rates. Buyers are drowned on record debts and are enjoying the low interest rates fueled by the pandemic for the last two years. I know so many friends who are buying 2 or 3 investment properties.  The record dept is putting everyone at risk and increasing vulnerability of the whole economy in Canada. This has to be addressed and everyone is expecting that the Bank would hike the rate to curb this crazy market.  

I doubt the hike will be able to stop the craziness as there are other factors that impact housing market such as inventory and increased immigration. But the madness will subside for a bit with the higher interest rate. 

 

## How will the bigger crypto market impact?
If Canada is thinking to increase interest rate, all the other jurisdiction around the globe must have been thinking in the same line. I am not sure how the crypto market would react to this deflationary monetary policy. Hiking interest rate will not solve all economic problems we have right now. There are ongoing supply-chain issues and the pandemic is still impacting the bigger market. No prediction but I will be keenly watching the market move. 

 

What do Hive people think? 

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