The Bank of Canada raised its key interest rate 75 basis points to 3.25 per cent. Read its official statement here
The Bank of Canada today increased its target for the overnight rate to 3.25 per cent, with the Bank Rate at 3.50 per cent and the deposit rate at 3.25 per cent. The Bank is also continuing its policy of quantitative tightening.Sign up to receive the daily top stories from the Financial Post, a division of Postmedia Network Inc.By clicking on the sign up button you consent to receive the above newsletter from Postmedia Network Inc.
Global inflation remains high and measures of core inflation are moving up in most countries. In response, central banks around the world continue to tighten monetary policy. Economic activity in the United States has moderated, although the U.S. labour market remains tight. China is facing ongoing challenges from COVID shutdowns. Commodity prices have been volatile: oil, wheat and lumber prices have moderated while natural gas prices have risen.
In Canada, CPI inflation eased in July to 7.6 per cent from 8.1 per cent because of a drop in gasoline prices. However, inflation excluding gasoline increased and data indicate a further broadening of price pressures, particularly in services. The Bank’s core measures of inflation continued to move up, ranging from 5 per cent to 5.5 per cent in July. Surveys suggest that short-term inflation expectations remain high.
The Canadian economy continues to operate in excess demand and labour markets remain tight. Canada’s GDP grew by 3.3 per cent in the second quarter. While this was somewhat weaker than the Bank had projected, indicators of domestic demand were very strong — consumption grew by about 9.5 per cent and business investment was up by close to 12 per cent. With higher, the housing market is pulling back as anticipated, following unsustainable growth during the pandemic.
Given the outlook for inflation, the Governing Council still judges that the policy interest rate will need to rise further. Quantitative tightening is complementing increases in the policy rate. 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.
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