Bank of Canada hikes benchmark interest rate by half a percentage point to 1.5%, predicts more hikes

Ottawa/CMEDIA: The Bank of Canada raising its benchmark interest rate by half a percentage point to 1.5 percent on Wednesday was widely expected as inflation had hit 6.8 percent in April, more than twice the level expected by the central bank

Much of the increase in inflation is reportedly due to pandemic-related supply shortages as well as surging commodity prices related to Russia’s invasion of Ukraine.

Still, policymakers were caught off guard as the economic recovery from the COVID-19 recession was fast and grew at an annual rate of about three percent in the first quarter, Statistics Canada on May 31 said.

The Bank of Canada also reportedly said that with the strong Canadian economic activity, consumer spending in Canada remaining robust, and exports anticipated to strengthen, growth in the second quarter is expected to be solid.

The central bank was reported to say that while the cost of living is already at its highest rate in 30 years, it doesn’t think things have peaked just yet, saying in a statement on Wednesday that inflation “will likely move even higher in the near term before beginning to ease.”

The policymakers said that the pace of further increases in the policy rate will be guided by the bank’s ongoing assessment of the economy and inflation.

The policymakers added that the Governing Council is prepared to act more forcefully if needed to meet its commitment to achieving the two-per-cent inflation target.

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