Once upon a time, the thought of a three-quarters of a percent hike by a central bank would have stunned us. Today, at least in Canada and the US, it has become the norm. The Bank of Canada’s decision this morning to do exactly that will have relatively no consequence for markets, which have priced in this move for weeks. It takes the Bank’s overnight target rate to 3.25%, which is the highest since April 2008, and will move Canada’s prime rate to 5.45%.

What is interesting is that even though the Bank rate is still 1.25% below its peak in 2007, the prime rate is now less than a percent from its same cyclical peak. Hence, even though financial markets may not be greatly impacted by today’s decision, borrowers are definitely going to feel it in terms of their revolving lines of credit and variable rate mortgages. As we have commented through the summer, Canada’s economy is already weakening; from jobs to housing.

This isn’t going to make it any better, however, the Bank has effectively painted itself into a corner. Unlike the Federal Reserve, which received fresh employment data last week and will get August inflation data before it meets on September 21^st, Governor Macklem and crew had no such luxury. There is also no Q&A today to flesh out the Bank’s decision.Although the BoC says that more tightening is needed, our view is that the Bank will need to take a pause in the fourth quarter to assess just how weak Canada has become and if inflation has truly entered a downward phase. Meanwhile, the soaring US dollar continues to pressure most other currencies, including the Loonie, despite a hawkish Bank.