Bank of Canada hikes key interest rate 50 basis points for 1st time in 22 years

13 Apr 2022 | Economy | 308 |
Bank of Canada hikes key interest rate 50 basis points for 1st time in 22 years

The country’s benchmark interest rate is rising half a percentage point, the Bank of Canada announced Wednesday, the first time it has raised rates by more than 25 basis points in more than two decades.

The central bank’s key overnight rate now stands at one per cent.

Bank of Canada governor Tiff Macklem said inflation is too high and is expected to stay elevated for longer than the bank previously thought.

“The invasion of Ukraine has driven up the prices of energy and other commodities, and the war is further disrupting global supply chains,” he said.

“We are also concerned about the broadening of price pressures in Canada.”

Macklem said Canadians should expect interest rates to continue to rise toward more normal levels.

 

This is the second consecutive interest rate hike in 2022, after the Bank of Canada increased rates by 25 basis points in March, breaking a period of steady rates held at historic lows over the course of the COVID-19 pandemic.

The central bank signalled more rate hikes are coming through the year to tamp down on inflation, which it now expects to be higher than initially projected through the first half of 2022.

The Bank of Canada says the spike in energy and other commodity prices in the wake of Russia’s invasion of Ukraine are driving inflation higher than its earlier expectations.It now says the annual inflation rate will average almost six per cent in the first half of this year compared with its January forecast of close to five per cent.

It is also easing pandemic-era stimulus measures by beginning so-called quantitative tightening later this month, when the government bonds it holds will no longer be replaced when they mature.

Wednesday’s 50-basis-point hike was widely expected by economists and market watchers who argued the central bank would have to act swiftly to get rampant inflation under control.

The Bank of Canada last raised interest rates by 50 basis points in May 2000.

— with files from Canadian Press

by Global News