The Bank Of Canada Is Raising Its Key Interest Rate By 1 Per Cent

The Bank of Canada raised the overnight rate by 100 basis points to 2.5% after higher than expected inflation. It is the biggest rate hike by the central bank since August 1998. The central bank attributes the war in Ukraine and ongoing supply chain issues as key drivers, but also points to excess demand in the domestic Canadian economy as a growing factor.

In May, the Consumer Price Index (CPI) reached 7.7%, the highest annual increase in nearly 40 years. The Bank says more than 50 per cent of price categories have increased by 5 per cent. The bank predicts that inflation will continue and peak around 8% in the coming months. Inflation is expected to ease starting in late 2022, reaching 3% by the end of 2023 and back to target by the end of 2024. The central bank also cut its forecast for economic growth, with gross domestic product (GDP) slowing to 3.5% in 2022 and 1.75% next year. One factor contributing to this decline is commodity prices, such as the price of oil, which are expected to continue to decline. The central bank expects global supply chain bottlenecks to begin to ease. Higher interest rates are also expected to help reduce inflation on the domestic front, with prices in the Canadian housing market expected to decline in the second half of 2022 and 2023, as “as lending rates rise and the boost to demand caused by the pandemic is decreasing.” Interest rate hikes are expected to continue until the end of this year to cool the overheated Canadian economy. “Given the high rate of inflation and barring economic contingencies, it is likely that the policy rate will continue to rise above 3 percent before the end of the year,” says Kevin Page, president and CEO of the Institute for Fiscal Studies and Democracy in the University of Ottawa. The next interest rate announcement is expected on September 7, 2022.

title: “The Bank Of Canada Is Raising Its Key Interest Rate By 1 Per Cent " ShowToc: true date: “2022-12-11” author: “James Gates”

The Bank of Canada raised the overnight rate by 100 basis points to 2.5% after higher than expected inflation. It is the biggest rate hike by the central bank since August 1998. The central bank attributes the war in Ukraine and ongoing supply chain issues as key drivers, but also points to excess demand in the domestic Canadian economy as a growing factor.

In May, the Consumer Price Index (CPI) reached 7.7%, the highest annual increase in nearly 40 years. The Bank says more than 50 per cent of price categories have increased by 5 per cent. “Our goal is to bring inflation back to the 2 percent target with a soft landing for the economy,” Bank of Canada Governor Tiff Macklem said during a news conference Wednesday. “To achieve this, we are rapidly raising our policy rates to prevent high inflation from entrenching.” The bank predicts that inflation will continue and peak around 8% in the coming months. Inflation is expected to ease starting in late 2022, reaching 3% by the end of 2023 and back to target by the end of 2024. Speaking to reporters in Kingston on Wednesday, Prime Minister Justin Trudeau acknowledged the global factors driving up costs. “We know there are global forces at play, whether it’s disruption or supply chains,” Trudeau said. “The war in Ukraine and the challenges around energy from Russia, whether it’s the pressures of climate change, whether it’s disrupting supply chains, these are things we’re working hard with our partners around the world to address for to prevent recession”. The central bank also cut its forecast for economic growth, with gross domestic product (GDP) slowing to 3.5% in 2022 and 1.75% next year. One factor contributing to this decline is commodity prices, such as the price of oil, which are expected to continue to decline. The central bank expects global supply chain bottlenecks to begin to ease. Higher interest rates are also expected to help reduce inflation on the domestic front, with prices in the Canadian housing market expected to decline in the second half of 2022 and 2023, as “as lending rates rise and the boost to demand caused by the pandemic is decreasing.” “We expect that interest rates will need to rise further to reduce demand and bring inflation back to target, and by front-loading our rates, we are trying to avoid the need to raise rates further,” Macklem said. Interest rate hikes are expected to continue until the end of this year to cool the overheated Canadian economy. “Given the high rate of inflation and barring economic contingencies, it is likely that the policy rate will continue to rise above 3 percent before the end of the year,” says Kevin Page, president and CEO of the Institute for Fiscal Studies and Democracy in the University of Ottawa. The next policy rate announcement is due on September 7, 2022.

WE WANT TO HEAR FROM YOU

What impact will this rate hike have on your life? Please email us at [email protected] with your name, location and contact information. Your comments may be used in a CTVNews.ca story.