Daily Management Review

Bank of Canada raises key rate by 75 basis points


09/08/2022


The Bank of Canada increased its benchmark interest rate by 75 basis points on Wednesday, reaching its highest level in 14 years while announcing the need for additional increases to tackle high inflation.



Bank of Canada - Banque du Canada
Bank of Canada - Banque du Canada
Following its regularly scheduled meeting, the Bank of Canada increased its interest rate from 2.5 percent to 3.25 percent, in line with forecasts made by analysts. The rate consequently rose to its highest point since April 2008 and went above the neutral zone for the first time in almost two decades.

The Governing Council continues to consider that it is necessary to raise the key rate, according to the central bank, given the inflation outlook. The significant rate increase was the fourth in a row.

Due to decreased gasoline prices, annual inflation dropped to 7.6 percent in July from 8.1 percent, according to the Bank of Canada, but the underlying rate of price growth increased. The rate of price growth in Canada is at its fastest level since the early 1980s.

Tiff Macklem, the governor of the Bank of Canada, previously stated that it would probably be necessary to raise the key rate above the neutral 2%–3% range, where monetary policy would neither encourage nor restrain economic development.

source: reuters.com