Canada Stocks: Toronto index down on fears of aggressive rate hikes

Canada Stocks: Toronto index down on fears of aggressive rate hikes

Canada's main stock index gave away early gains to trade lower on Wednesday after the Bank of Canada said it was prepared to hike interest rates aggressively to combat surging inflation.

At 10:16 a.m. ET (1416 GMT), the Toronto Stock Exchange's S&P/TSX composite index was down 40.41 points, or 0.19%, at 20,688.93.

The central bank raised its policy interest rate to 1.5% from 1.0%, its second consecutive 50-basis-point hike, and said it was prepared to act "more forcefully if needed" to bring inflation back to target.

Canada's inflation rate hit 6.8% in April, with food prices surging at rates not seen since the early 1980s. If left unchecked, the Bank of Canada risks a price spiral, making getting back to the 2% inflation target even harder.

"Such notable rate hikes, however, can have a strong impact on the stock markets over the next six months to a year for a number of reasons," said Kunal Sawhney, chief executive at research firm Kalkine.

"Firstly, consumers are likely to feel a strain in their spending budget, which can in turn hamper their equity investment capacities. Two, international institutional investors may want to move away from developed economies like Canada, where interest rates are expanding."

Healthcare shares fell 1.26%,