The Bank of Canada went into overdrive to fight inflation by raising its key rate by 50 basis points to 1%.
Posted at 10:00 a.m.
Updated at 10:23 a.m.
Most economists were expecting a hefty hike in the policy rate, given that Canada’s unemployment rate is at its lowest level in recorded history at 5.3% and inflation is not giving any sign of appeasement. In February, the consumer price index was up 5.7%.
“As the economy enters a phase of excess demand and inflation remains well above target, the Governing Council believes that interest rates will need to rise further,” the central bank said in its statement. expected.
The inflation rate has exceeded the central bank’s forecasts for several months and it now expects it to remain high for longer. “The Bank now expects CPI inflation to average nearly 6% in the first half of 2022 and to remain well above the inflation-control range throughout the year. ‘year “.
The return to the 2% target is now scheduled for 2024.
At 1%, the key rate remains at a historically low level. The Bank of Canada’s plans to move gradually to bring interest rates back to a more normal level have been disrupted by the war in Ukraine, which has driven up commodity prices, especially energy, and helped fuel inflation around the world. In the United States, the annual growth rate of inflation reached 8.5% in March.
Raising interest rates is the Bank of Canada’s main tool to calm rising prices. In the past few days, central bank leaders had signaled they were determined to act vigorously not to let inflationary expectations take hold.
Most economists believe that monetary authorities are behind the times and that the key rate is still too low compared to what it should be, given that the Canadian economy has more than recovered the ground lost during the pandemic. The Bank of Canada could increase its key rate five more times by the end of the year, which would take it to 1.75%.
The next interest rate decision is 1er June.