Bank of Canada hikes key interest rate for fifth time this year to 3.25%

The Bank of Canada (BoC) has raised its key interest rate for the fifth time this year to 3.25% in an attempt to curb inflation.

It increased by 0.75% from the institution’s full percentage point hike in July to 2.5%. That was the biggest spike since 1998.

“The global and Canadian economies are evolving broadly in line with the Bank’s July projection,” stated the Bank in a Wednesday release. “The effects of COVID-19 outbreaks, ongoing supply disruptions, and the war in Ukraine continue to dampen growth and boost prices.”

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— Bank of Canada (@bankofcanada) September 7, 2022

Inflation

The Bank adds that global inflation continues to rise, so central banks are responding by tightening their monetary policies.

Canada’s inflation hit a staggering 8.1% in July, breaking another record in the country’s history.

“Inflation excluding gasoline increased and data indicate a further broadening of price pressures, particularly in services,” the bank explained. “The longer this continues, the greater the risk that elevated inflation becomes entrenched.”

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In fact, the BoC’s Governing Council still thinks the interest rate will need to rise further given the outlook of inflation.

“As the effects of tighter monetary policy work through the economy, we will be assessing how much higher interest rates need to go to return inflation to target,” said the BoC.

Its goal is to stabilize prices by reaching its 2% inflation target.

Housing market

The financial institution says that with higher mortgage rates, the housing market has pulled back “following unsustainable growth during the pandemic.”

In fact, this has prompted a “quiet summer” in some Canadian cities’ home sales.

The next scheduled announcement for an interest rate hike is on October 26, 2022.