The Bank of Canada has once again hiked its key interest rate. on June 1, the bank raised its overnight interest rate by 50 basis points, to 1.5 percent.
The move is part of the central bank’s larger strategy to curb inflation in Canada. In April, the Consumer Price Index, which measures inflation by tracking the cost of staples like groceries and gas, hit a 31-year high when it rose by 6.8 percent, compared to a year ago.
Most experts consider healthy inflation to be somewhere around two percent.
The Bank of Canada’s key interest rate sets the benchmark for other Canadian banks. As those rates go up, it gets more expensive to borrow money. That, in theory, makes people spend less, helping dampen inflation.
The Bank of Canada also said it will continue its “quantitative tightening” policy, as it reduces the pace of reinvestment of proceeds from government bonds.
All these measures are designed to bring inflation back down into that two percent range. However, the bank says inflation will probably go even higher before it finally starts to fall.
Because of that, the Bank says it will almost certainly need to raise interest rates further. It said it’s “prepared to act more forcefully if needed to meet its commitment to achieve the two percent inflation target.”
The Bank says its next scheduled interest rate adjustment will come on July 13, when it will also publish its next full economic outlook.
The Bank says global inflation is rising as the overall economy slows down. Russia’s invasion of Ukraine, China’s Covid-19-related lockdowns, and ongoing supply disruptions are all “weighing on activity and boosting inflation.”
The war has also increased uncertainty and is putting more pressure on energy and food prices.
Meanwhile, the Canadian economy remains strong and “is clearly operating in excess demand.”
Job vacancies are up, companies are reporting widespread labour shortages, and wage growth has been picking up. The country’s housing market is moderating from exceptionally high levels and consumer spending is healthy.
Trevor Nichols is a Reporter for Huddle Today, a content sharing partner of Acadia Broadcasting Corporation
