OTTOWA (Reuters) – The Bank of Canada raised its key rate on Wednesday to its highest level in 15 years, adding that it would likely take a break from raising rates to assess the cumulative effect of past hikes.
The central bank’s overnight rate target was raised by 25 basis points to 4.50%, the highest since December 2007, a move in line with forecasts by economists polled by Reuters.
The central bank raised its rate at a record pace of 425 basis points in ten months in an attempt to rein in rising prices, which peaked at 8.1% last summer and have since slowed to 6.3% on a year in December. But inflation is still more than three times higher than the institution’s 2% target.
Canada’s growth in 2023 will be stronger than forecast in October but the economy is expected to stagnate in the first half of the year, the Bank of Canada said. Inflation is expected to pick up around 3% by mid-year and will reach the target in 2024.
If the economy develops as expected, “the Board expects to hold the policy rate at its current level while it assesses the impact of cumulative interest rate increases,” the statement read.
“The Board stands ready to raise the policy rate further if necessary to bring inflation back to the 2% target, and remains committed to restoring price stability for Canadians.”
(Steve Scherer and David Ljunggren, French version Laetitia Volga, edited by Blandine Hénault)
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