Late last week, Bank of Canada (BoC) Governor Tiff Macklem had market watchers riled up with language fueling speculation of a super-sized interest rate hike on June 1. “We’re prepared to be as forceful as needed and I’m really going to let those words speak for themselves,” he stated from Washington, D.C., while attending meetings with other global monetary policy leaders.

While vague, many analysts took these comments to mean a 0.75% increase could be in the cards for the Bank’s trend-setting Overnight Lending Rate.

Today, however, Macklem quelled some of those concerns, with a much more direct message indicating a half-point hike is as high as the BoC is willing to go.

Speaking to the House finance committee in Ottawa, Macklem acknowledged that while the 0.5% increase implemented earlier this month is an “unusual” step, another is justified given today’s economic conditions.

READ: “We See Prices Peaking This Spring”: Interest Hikes a Game Changer, Says RBC

“We’ve signalled very clearly Canadians should expect further increases,” he said. “Looking ahead to our next decisions, I expect we will be considering taking another 50-basis-point step.”

However, he took pains to diffuse expectations the hike could be higher, saying it would be a “very unusual” move.

It’s the first time the Governor has directly acknowledged that a more aggressive monetary policy approach is a certainty; however, there has already been strong expectation that this would be the case, as inflation continues to spiral to historic new highs, reaching 6.7%. Several big bank economists weighed in on the possibility of larger-than-usual hikes last week, including Scotiabank’s Derek Holt, who said there is a “solid case” for a full 1% hike, and National Bank of Canada Economist Stéfane Marion, who told BNN Bloomberg that “50 [bps] is the new 25.”

Overnight swaps have baked in the likelihood of a 0.5% June increase.

Macklem also provided new insights as to how the central bank is viewing inflation, indicating it will be a more permanent phenomenon than monetary policy makers previously expected. “It’s fair to say that Team Transitory has disbanded,” he stated.

The Bank of Canada must wrestle inflation, which has been spurred by both the global supply chain crisis and steep energy prices, by increasing its policy rate to a “neutral” level -- between 2 - 3% -- in hopes it will calm the Consumer Price Index. A 0.5% increase in June would bring this rate to 1.5%, leaving room for even more increases to come before the year is through.

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