BOC raises rate to 1.5%, warning there’s more on the way

BOC raises rate to 1.5%, warning there's more on the way

Canada's central bank announced another notable increase to its key interest rate this morning amid ascending inflation.

The bank raised its overnight to 1.5 per cent, a 50 basis point increase. The Bank of Canada signalled it plans to persist with interest rate hikes as long as inflation remains elevated. This is the first consecutive half point increase since scheduled interest rate announcements were put into effect over twenty years ago.

The BOC's interest rate was near zero earlier this year, but the bank hiked the rate in March and again the following month in hopes of curtailing inflation in housing, food and gas.

After March's increase of 0.25 per cent, 0.50 per cent increase in April suggest a newfound urgency by the central bank. This morning's increase of 0.50 per cent was as expected.

Inflation reached 6.8 per cent in April, the highest since 1991. Gas prices were up over 35 per cent, with gas gas up nearly 10 per cent.

The war in Ukraine has pushed wheat prices upward as a substantial portion of the world's wheat supply is sourced from that area. The central bank's most recent policy announcement noted the war, lockdowns in China, and persistent supply interruptions as the leading drivers in increased inflation.

Canada's GDP's moderated in this year's first quarter, growing at a 3.1 per cent annualized pace, down nearly 7 per cent from last year's fourth quarter

The economy is “clearly operating in excess demand,” explained the central bank in this morning's announcement.

“Job vacancies are elevated, companies are reporting widespread labour shortages, and wage growth has been picking up and broadening across sectors. Housing market activity is moderating from exceptionally high levels. With consumer spending in Canada remaining robust and exports anticipated to strengthen, growth in the second quarter is expected to be solid.”

The central bank's next rate announcement will be on July 13.