Bank of Canada bumps key interest rate to 1.5% as inflation surges

The Bank of Canada hiked its key interest rate to 1.5% today.

Surging inflation both in Canada and globally influenced the central bank’s decision to raise its rate by half a percentage point — and it anticipates more increases.

“With the economy in excess demand, and inflation persisting well above target and expected to move higher in the near term, the Governing Council continues to judge that interest rates will need to rise further,” the press release reads.

Bank of Canada increases policy interest rate by 50 basis points, continues quantitative tightening #economy #cdnecon https://t.co/TxKc6CvslK

— Bank of Canada (@bankofcanada) June 1, 2022

The bank says inflation has largely been driven by higher prices for energy and food.

It also cited Russia’s ongoing war on Ukraine, China’s COVID lockdowns, and continuing supply disruptions as factors that are feeding inflation.

“The war has increased uncertainty and is putting further upward pressure on prices for energy and agricultural commodities,” stated the central bank.

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The bank wrote that Canada’s “clearly operating in excess demand” as job vacancies rise and companies are reporting widespread labour shortages.

“With consumer spending in Canada remaining robust and exports anticipated to strengthen, growth in the second quarter is expected to be solid,” stated the bank.