The BoC (Bank of Canada) raised the overnight lending rate by a full percentage point, bringing the policy interest rate up to 2.50%. Based on predictions from economists, a 75 basis point increase was expected - making this the largest jump in the central bank’s key rate since 1998.
Recently there has been an upward pressure on prices due to global factors such as the war in Ukraine and supply chain disruptions. Last May, we saw the CPI (consumer price index) increase to 7.7%, further raising the urgency for the BoC to tighten monetary policy. Their current goal is to moderate economic growth in order to manage inflation by raising the key policy rate.
Further quantitative tightening is widely expected in the coming months as the economy stays in excess demand with high inflation. However, current economic forecasts are expecting inflation to come back down later this year.
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