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Toronto stocks drop after surprises with supersized rate hike – Financial Post

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Bansari Mayur Kamdar

Canada’s main stock index tumbled on Wednesday after the country’s central bank raised rates by an unexpected 1% and lifted its inflation forecast, while hot U.S. inflation data bolstered bets for aggressive monetary policy tightening by the Federal Reserve.

At 10:30 a.m. ET (14:30 GMT), the Toronto Stock Exchange’s S&P/TSX composite index was down 265.84 points, or 1.42%, at 18,412.8.

Canada’s central bank raised rates by 100 basis points to 2.5% to combat galloping inflation. The Bank of Canada also dramatically lifted its near-term inflation forecasts, warning of an increased risk of higher price gains becoming entrenched, as it slashed its growth forecasts for 2022 and 2023.

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“The Bank of Canada’s rate hike of 100 basis points clearly means that they were very far behind the curve and so they’re trying to catch up in a hurry and not get into a situation where we have a whole series of inflation positive surprises,” said James Telfser, managing partner at Aventine Investment Counsel.

“The knee-jerk reaction is not too different from how the markets had been trading on the back of the US inflation print, but you’re going see more pressure on financials and technology in Canada.”

The financials sector slipped 2.2%, while rate-sensitive technology stocks fell 1.3%.

The Toronto Stock Exchange’s S&P/TSX composite index was already trading lower after a jump in U.S. consumer prices slammed global markets and cemented the case for the Federal Reserve to hike interest rates by 75 basis points later this month.

Toronto stocks have fallen nearly 13% so far this year as energy and materials, that account for about 30% of the TSX’s market capitalization, tracked lower commodity prices on investor fears of a potential recession-driven demand downturn due to interest rate hikes by major central banks. (Reporting by Bansari Mayur Kamdar in Bengaluru; Editing by Vinay Dwivedi)

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