Waterloo Region Record

Fighting inflation

Bank of Canada hikes key interest rate by quarter point, says it plans to hold

NOJOUD AL MALLEES

The Bank of Canada delivered what it expects to be its last interest rate hike of the cycle as it pauses to assess the effects of higher rates on the economy.

The central bank raised its key interest rate by a quarter of a percentage point Wednesday, marking the eighth consecutive hike since March in the face of decades-high inflation.

Its key interest rate now stands at 4.5 per cent, the highest it’s been since 2007.

In a news release, the Bank of Canada said the Canadian economy is still overheated, prompting its governing council to raise interest rates once again. However, if economic developments stay in line with its current projections, the central bank said it expects to hold its key interest rate at its current level.

“To be clear, this is a conditional pause,” Governor Tiff Macklem said at a news conference Wednesday. “If we need to do more to get inflation to the two per cent target, we will.”

TD director of economics James Orlando said the Bank of Canada had to keep the option of raising rates again on the table so that financial conditions remain tight and spending is restrained.

The rate hike Wednesday comes after months of inflation slowing in

Canada. After peaking at 8.1 per cent in the summer, the country’s annual inflation rate has steadily declined and reached 6.3 per cent in December.

The Bank of Canada also published its latest monetary policy report Wednesday, providing updated projections for the economy and inflation.

According to the report, the central bank expects inflation to slow faster than it had previously anticipated. It’s forecasting the annual inflation rate will fall to three per cent by mid-2023 and to its two per cent target in 2024.

The slowdown in inflation has been attributed to declines in energy prices as well as easing in global supply chain disruptions.

Orlando said economists are becoming more confident that inflation will in fact slow considerably this year. “Everything is in place for inflation to continue to decelerate,” he said.

At the same time, the labour market is still tight and inflation expectations among businesses and consumers are still elevated, the central bank said. Statistics Canada’s latest labour force survey revealed unemployment is near historical lows, with the unemployment rate at five per cent in December.

The Bank of Canada is also projecting the economy will grow by a modest one per cent in 2023.

The rate hike Wednesday comes after months of inflation slowing in Canada

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2023-01-26T08:00:00.0000000Z

2023-01-26T08:00:00.0000000Z

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