Central bank is aggressively moving up lending rates to fight runaway inflation
The Bank of Canada raised its benchmark interest rate by the largest amount in more than 20 years on Wednesday, sharply increasing the cost of borrowing in an attempt to rein in runaway inflation.
Canada’s central bank raised its benchmark interest rate by a full percentage point to 2.5 per cent. That’s the biggest one-time increase in the bank’s rate since 1998.
The bank’s rate impacts the rate that Canadians get from their lenders on things like mortgages and lines of credit.
All things being equal, a central bank cuts the lending rate when it wants to stimulate the economy by encouraging people to borrow and invest. It raises rates when it wants to cool down an overheated economy.
After slashing its rate to record lows at the start of the pandemic, the bank has now raised its rate four times since March as part of an aggressive campaign to fight inflation, which has risen to its highest level in 40 years.
Economists had been expecting the bank to raise its rate by three-quarters of a percentage point, but the full percentage point increase was ahead of even those high expectations.
“With the economy clearly in excess demand, inflation high and broadening, and more businesses and consumers expecting high inflation to persist for longer, the Governing Council decided to front-load the path to higher interest rates by raising the policy rate by 100 basis points today,” the bank said.
The bank made it clear that even more rate hikes are in the offing in the coming months, too.
“The Governing Council continues to judge that interest rates will need to rise further, and the pace of increases will be guided by the Bank’s ongoing assessment of the economy and inflation.”
Officials at the central bank, including governor Tiff Macklem and deputy governor Carolyn Rogers, will have more to say about the bank’s line of thinking on the economy at a media conference starting at 11 a.m. eastern time on Wednesday.
https://www.cbc.ca/news/business/bank-of-canada-rate-hike-1.6518161
