The central bank raised its policy rate to 4.5 percent in its first decision of 2023, an increase of 25 basis points. This is the highest the Bank of Canada’s key rate has been since 2007.
Wednesday’s decision marks the eighth consecutive time the Bank of Canada has raised the cost of borrowing, hiking the benchmark rate a total of 4.25 per cent in the past year in an effort to tamp down inflation.
22% of Canadians say they’re ‘completely out of money’ as inflation bites: poll
Jeremy Renner was trying to save his nephew when he was crushed by a snowplow: report
Most economists had expected the 25-basis-point move.
But the central bank said in a statement accompanying the rate hike that it expects to hold the policy rate at its current level while it assesses the impact of its increases to date.
“We’ve raised rates rapidly, and now it’s time to pause and assess whether monetary policy is sufficiently restrictive to bring inflation back to its two percent target,” Bank of Canada Governor Tiff Macklem told reporters after the announcement on Wednesday.
He added that the hold is “conditional” on whether the economy continues to develop according to its forecast, and he made it clear that additional hikes could be in the cards to get inflation back down to the two percent target.
Headline inflation has cooled from a high of 8.1 percent in mid-2022, most recently clocking in at 6.3 percent in December.
Bank of Canada raises interest rate to 4.5 percent, signals pause on hikes for now
The Bank of Canada said in an updated set of projections Wednesday that it expects inflation to “decline significantly” in the coming months, reaching three percent by mid-2023 and two percent next year.
Here, too, policymakers added a caveat. Macklem acknowledged that the Bank’s forecast for inflation depends heavily on global factors such as energy prices. And while goods prices have shown improvement lately, the stickiness of inflation in the services sector is another risk to the Bank’s outlook, he said.
Inflation is hitting restaurants hard. What to expect when dining out in 2023
Alberta dad learns about son’s death in Victoria after Googling his name, finding obituary
“Inflation is still over six percent. Yes, we are certainly seeing clear evidence… that inflation is coming down. But we do have to be humble. There are a number of risks out there,” he said.
The pause on interest rate hikes could end if the Bank starts to see an “accumulation of evidence” that inflation and other economic indicators aren’t heading the way policymakers expect, Macklem said.
Asked by reporters whether interest rates could start to decline, the central bank governor pushed back on speculation amid money markets that a rate cut is coming before the end of 2023.
“It’s far too early to be talking about cuts,” he said.
More to come.
What a 2023 recession in Canada could look like
© 2023 Global News, a division of Corus Entertainment Inc.