Bank of Canada moved to raise the key interest rate to 1 percent due to Canada’s skyrocketing inflation

CMEDIA/The Bank of Canada raised its key interest rate to one percent on Apr 14, the highest rate increase in more than 20 years, with a warning that rate increases could be on the horizon owing to Canada’s rising inflation. 

The bank’s move of slashing its rate to barely above zero in March of 2020 when the pandemic began, helped the economy to combat  COVID-19’s unprecedented uncertainty.

But the continuous skyrocketing inflation had caused the Bank of Canada to hike its benchmark interest rate by half a percentage point to one percent.

“Inflation is too high,” Bank of Canada governor Tiff Macklem said at a press conference announcing the news. “We need higher interest rates.”

The increase in the bank’s key interest rate is expected to prompt Canada’s big banks to raise their prime rates — a change that will increase the cost of loans linked to the benchmark, including variable-rate mortgages.

The rates Canadian businesses and consumers pay and receive on things like mortgages, GICs, and savings accounts are adversely impacted by the bank’s rate.

The bank also said it was considering another form of stimulus withdrawal by stopping purchasing government bonds later this month to start shrinking its balance sheet.

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