Bank of Canada increases interest rate to 5%

The Bank of Canada (BoC) has hiked its key interest rate to 5% from 4.75%, with the Bank Rate at 5.25% and the deposit rate at 5%.

In an update on Wednesday morning, the BoC said that though Canada’s economy has been stronger than expected — with more momentum in demand and strong consumption growth at 5.8% in the first quarter — recent retail trade and other data suggest “more persistent excess demand in the economy.”

The central bank added that new construction and real estate listings are “lagging demand,” adding pressure to prices.

“In the labour market, there are signs of more availability of workers, but conditions remain tight, and wage growth has been around 4-5%,” officials wrote.

They noted that solid population growth from immigration adds demand and supply to the economy. This means newcomers are helping relieve labour shortages and boosting consumer spending, adding to the need for housing.

“As higher interest rates continue to work their way through the economy, the Bank expects economic growth to slow, averaging around 1% through the second half of this year and the first half of next year,” said the Bank of Canada. “This implies real GDP growth of 1.8% in 2023 and 1.2% in 2024. The economy will move into modest excess supply early next year before growth picks up to 2.4% in 2025.”

Today’s announcement marks the Bank’s fifth rate hike since January 2023. The next scheduled date for announcing the overnight rate target is September 6, 2023.

Two more interest rate announcements will follow this year on October 25 and December 6.

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