Bank of Canada raises interest rate for sixth time to 3.75%
Posted Oct 26, 2022 03:40:17 AM.
Last Updated Oct 26, 2022 09:24:35 AM.
The Bank of Canada raised its key interest rate by half of a percentage point to 3.75 per cent on Wednesday, making it one of the fastest monetary policy tightening cycles in its history.
It is the sixth consecutive time the central bank has raised the interest rate this year in response to decades-high inflation. However, the rate hike was smaller than expected as some economists had forecast a 0.75 percentage point increase to four per cent.
After keeping its interest rate at 0.25 per cent for two years, the Bank of Canada first raised its overnight lending rate to 0.50 per cent in March.
Since then, it has continued to raise it every month, with an increase of a full percentage point in July — making it the largest single rate hike since August 1998.
In its latest monetary policy report, the central bank said rates will need to rise further due to inflationary pressures.
“Given elevated inflation and inflation expectations, as well as ongoing demand pressures in the economy, the Governing Council expects that the policy interest rate will need to rise further,” the Bank of Canada said.
The central bank is projecting that inflation will slow to three per cent at the end of this year before it reaches its target of two per cent in 2024.
In September, the annual inflation rate in Canada cooled slightly to 6.9 per cent but the cost of groceries continued to climb. Grocery prices rose at the fastest rate since August 1981, with prices up 11.4 per cent compared with a year ago.
The latest rate update comes amid growing fears that a recession is around the corner.
In Canada, the central bank said it expects economic growth to stall toward the end of the year and into the beginning of 2023, with growth somewhere between zero per cent and 0.5 per cent.
“This suggests that a couple of quarters with growth slightly below zero is just as likely as a couple of quarters with small positive growth,” the bank said.
Its longer run forecast suggest the Canadian economy will grow by just under one per cent in 2023, then by two per cent in 2024.
Global growth is expected to decline from 3.25 per cent in 2022 to about 1.5 per cent in 2023, marking the slowest rate of global growth since 1982, excluding the COVID-19 pandemic and the 2008-09 global financial crisis. It’s then expected to rebound to about 2.5 per cent in 2024.