The Bank of Canada has announced that it has increased its policy interest rate by 100 basis points.
“The Bank of Canada today increased its target for the overnight rate to 2.5%, with the Bank Rate at 2.75% and the deposit rate at 2.5%,” read the announcement, published Wednesday morning. “The Bank is also continuing its policy of quantitative tightening (QT).”
Before the final 1% rate hike came, analysts were expecting a 0.75% increase. Now, the Bank of Canada has admitted that inflation in the country is “higher and more persistent” than it had anticipated back in April, and will likely stay around 8% in the coming months.
— Bank of Canada (@bankofcanada) July 13, 2022
Trevor Tombe, professor at the Economics department of the University of Calgary, said this was the largest increase since 1998. “It’s now at the mid-point of the neutral range (i.e., monetary policy is no longer expansionary),” he tweeted.
The interest rate increase was mostly brought about by political disruptions globally, such as the Russian assault on Ukraine. However, the Bank says domestic price pressures from excess demand are “becoming more prominent,” too.
With worldwide inflation, the Bank of Canada expects global economic growth will only begin picking up in a solid way in 2024. According to them, Canada’s economic growth will be up by 3.5% in 2022, 1.75% in 2023, and 2.5% in 2024.
Record-low unemployment rates and labour shortages are also to blame.