Amid continued efforts to tame inflation, the Bank of Canada raised its key overnight benchmark by a half percentage point on Wednesday, the biggest increase in more than 20 years.
Following on the heels of a 0.25% increase in March, today’s hike of 0.5% takes the Bank’s rate to 1%, making it more expensive for farmers and others to borrow money. And more increases are on the horizon. With inflation now expected to average almost 6% in the first half of 2022 and remain well above the target range of 1-3% for the remainder of this year, the Bank said rates “will need to rise further.”
Additionally, the Bank also announced today it will begin a quantitative tightening program, effective April 25 – the opposite of the quantitative easing program it embarked on in the early days of the COVID-19 pandemic when it slashed rates to 0.25% as a means of trying to prop up the economy. Last month’s rate increase was the first in three years.
In its accompanying statement, the Bank said the Russian invasion of Ukraine has worsened inflation, which is now running at its highest levels in Canada decades. The February inflation rate of 5.7% was the highest in 30 years.
“Price spikes in oil, natural gas and other commodities are adding to inflation around the world,” it said. “Supply disruptions resulting from the war are also exacerbating ongoing supply constraints and weighing on activity. These factors are the primary drivers of a substantial upward revision to the Bank’s outlook for inflation in Canada.”
The Bank said inflation is expected to ease to about 2.5% in the second half of 2023 and decline further to 2% in 2024.
Click here to see more...