Bank Of Canada Increased Benchmark Interest Rate by 0.75%

The Bank of Canada raises the benchmark interest rate by 75 basis points and keeps its policy of quantitative tightening.

Currently, the key policy rate of the Central Bank is 3.25 per cent.

Today, the Bank of Canada raised its overnight rate goal to 3¼ per cent, keeping the bank rate at 3½ per cent and the deposit rate at 3¼%. The Bank is also keeping up its quantitative tightening strategy.

The benchmark interest rate in Canada was just 0.25 percent in January, making this the fifth rate increase so far in 2022.

The development of the economy in Canada and around the world is generally in line with the Bank’s July forecast. However, growth is still being slowed as costs are rising due to COVID-19 outbreaks, ongoing supply problems, and the crisis in Ukraine.

Global inflation is still high, and most nations are increasing core inflation measures. As a result, central banks worldwide are maintaining their tightening monetary policy.

Despite a slowdown in economic growth, the US labour market is still quite tight. As a result, shutdowns of COVID continue to provide difficulties for China. In addition, the cost of commodities has fluctuated: although the cost of oil, wheat, and lumber has decreased, the cost of natural gas has increased.

Due to a decline in gasoline costs, Canada’s CPI inflation slowed in July, falling to 7.6% from 8.1%. However, a further broadening of pricing pressures, particularly in services, is indicated by figures showing an increase in inflation, excluding gasoline.

In July, the core inflation measures used by the Bank increased by 5% to 5.5%. According to surveys, predictions for short-term inflation are still high. The likelihood that high inflation will persist increases the longer this goes on.

The Canadian economy is still experiencing excess demand in a tight labour market. In the second quarter, Canada’s GDP grew by 3.3 per cent. While this was weaker than the Bank had anticipated, indications of domestic demand were nevertheless very strong. Consumption increased by approximately 9½ per cent, and business investment increased by over 12 per cent.

After unsustainable growth during the pandemic, the housing market is retracting as expected due to increasing mortgage rates. As global demand declines and tighter monetary policy in Canada starts to bring demand more in line with supply, the Bank continues to anticipate that the economy will decelerate in the second half of this year.

The Governing Council believes that a further increase in the policy interest rate is necessary given the inflation outlook. Therefore, the policy rate hike is complemented by quantitative tightening.

The Bank will evaluate how much higher interest rates are necessary to bring inflation back to target as tighter monetary policy spreads across the economy.

Furthermore, the Governing Council will continue to take the necessary steps to attain the 2% inflation goal as it is steadfast in its commitment to price stability.

Source: Bank of Canada

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