The Bank of Canada’s key rate drops to 4.50%

The Bank of Canada raised its key interest rate on Wednesday by 25 basis points to 4.50%, a high since 2007, and now expects to keep it there for some time.

This was the eighth consecutive increase in the central bank’s key rate, which is trying to combat the highest inflation observed in several decades. The overnight rate was at 0.25% last March.

In the statement announcing its decision, the central bank noted that inflation remained high and was widespread around the world, but was falling in many countries, mainly thanks to the decline in oil prices. energy and improvements in supply chains.

In Canada, annual inflation went from 8.1% in June to 6.3% in December. Despite this notable improvement, it remains well above the 2% target favored by the Bank of Canada.

The downward trend in inflation should nevertheless continue this year, the bank added, and price growth should settle at around 3% in the middle of 2023, then return to the target of 2024 the year next.

Separately, the central bank estimates that the economy grew 3.6% in 2022, slightly higher than its October projection. Growth is expected to stagnate through the middle of 2023, to show an increase of around 1% in 2023 and then 2% in 2024, the bank calculates, which is essentially in line with its previous forecast.

The central bank clarified that while economic developments turn out to be broadly in line with its outlook, its governing council expects to keep the policy rate at its current level while it assesses the impact of cumulative increases. interest rate.

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