The Bank of Canada on Wednesday raised its key interest rate by 25 basis points to 4.75%, making its first hike since announcing in January that it was taking a break.
The central bank’s policy rate is now at its highest level since April 2001.
The Bank of Canada explained that its governing council had determined that interest rates were not high enough to rebalance the economy and bring annual inflation back to its target of 2.0%.
Several economists and forecasters had noted that the economic data released recently had been stronger than expected, which would probably force the bank to make another rate hike in the coming months.
According to the central bank, excess demand in the economy appears more persistent than expected, citing labor market tensions, better-than-expected economic growth in the first quarter and “surprisingly strong and broad-based consumption growth”. “.
The Bank of Canada still expects annual inflation to decline to around 3.0% over the summer, from 4.4% in April, but since inflation base rate remains high, she worries that inflation will remain “stuck well above” its target..
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