OTTAWA-
The Bank of Canada raised its key rate by 75 basis points, taking its key rate from 2.5% to 3.25%. Since March, the bank has raised its key rate by 300 basis points – the fastest pace since the mid-1990s – in a bid to bring inflation back to its target of 2%.
The bank credits the war in Ukraine, ongoing COVID-19 lockdowns in China and volatile commodity prices as the main drivers of high global inflation.
According to Statistics Canada, inflation rose to 7.6% in July, down from its peak of 8.1% in June. The drop was mainly due to lower gasoline prices; however, other price measures for food and services remained elevated.
However, the bank said the core measure of inflation in Canada continues to rise, raising the risk that higher prices could take hold. The bank predicts that further increases in the policy rate will be needed to bring inflation back to that 2% target.
“They’ve set the stage for further rate hikes,” said Kevin Page, president and CEO of the University of Ottawa’s Institute for Fiscal Studies and Democracy. “They probably need to bring their key rate to 4%.”
Speaking to reporters in Vancouver, where federal cabinet ministers gathered for a retreat, Deputy Prime Minister and Finance Minister Chrystia Freeland said the government “will continue to take a balanced and prudent approach as we’ve been doing it all year.”
“This is a challenging global environment economically, we are still dealing with the aftershocks of the COVID recession, we now have Putin’s invasion of Ukraine which is causing huge challenges for the global economy , mainly Europe, but it impacts all of us, and Canada is not immune to these challenges,” she said, adding that Canada still had “really strong economic fundamentals “.
When asked if she thought continued interest rate increases by the Bank of Canada were the best approach, she replied, “It’s not my job to do the bank’s job. And I think it’s important for Canadians to recognize that the Bank has the mandate, the tools and the expertise to fight inflation.
In July, the bank raised its interest rate by 100 basis points to 2.5%, the largest rate hike since August 1998. At a press conference following the decision, the Governor of the Bank of Canada, Tiff Macklem, promised a “soft landing” for the Canadian economy. , while achieving the bank’s objective of bringing inflation under control.
“We believe there is a path for a soft landing, but I will be very frank, that path is narrowing,” Macklem said, during an interview with CTV National News on July 20.
Canada’s gross domestic product grew 3.3% in the second half of 2022, slightly below the bank’s projection of 4%.
The bank expects growth to continue to slow in the second half of the year, bringing demand back into line with supply in the Canadian economy.
The next Bank of Canada rate announcement is scheduled for October 26.
With files from CTVNews.ca producer Rachel Aiello in Vancouver