The Central Bank of Canada raises interest rates by one point

TORONTO (AP) — Canada’s central bank said on Wednesday it was raising its target interest rate by one percentage point in a bid to fight inflation — and warned more rate hikes would follow most likely.

The Bank of Canada raised the overnight rate to 2.5%, the biggest increase since 1998 and the highest level since 2008.

The bank said inflation is higher and more persistent than expected and the bank expects it to remain around 8% over the next few months. He blamed the war in Ukraine, continued supply disruptions and excess demand in Canada.

The bank warned that if high inflation took hold, the economic cost of restoring price stability would be higher.

“Inflation is too high. And more and more people are worried that high inflation is here to stay. We can’t let that happen,” said the Governor of the Bank of Canada, Tiff Macklem.

“The Canadian economy is overheating. There are labor shortages and many goods and services. Demand needs to slow so that supply can catch up and price pressures ease.

He said the bank had decided to frontload the path to higher interest rates and further rate hikes were expected.

The consumer price index in Canada rose 7.7%, the largest annual increase in nearly 40 years. The bank said more than 50% of price categories rose more than 5%.

Most economists had forecast a rate hike of three-quarters of a percentage point.

“After being overtaken by the Fed in June, the Bank of Canada has regained its leading status, with the highest policy rate among G7 countries and the biggest step in this tightening cycle, as it seeks to ease inflation fears,” Karyne Charbonneau, a senior economist at CIBC Capital Markets, said in a note.

This is the fourth consecutive increase in interest rates by the Bank of Canada since March. The bank has been slow to tighten monetary policy, even though inflation took hold last year.

“By pre-loading increases, we are now trying to avoid even higher rates in the future,” Macklem said.

Copyright 2022 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.

Stephen V. Lee