The Bank of Canada on Wednesday raised its main interest rate by 0.25 points to 4.75%, three months after being the first major central bank to pause its hikes.
Given the excess demand in the economy (which) seems more persistent than expected and the first rise in ten months of inflation in April, 4.4% over one year, the central bank judged that the monetary policy was not restrictive enough to restore the balance between supply and demand and ensure a sustainable return to the inflation target of 2%.
Inflation rebounded slightly in April in Canada, contrary to expectations, and for the first time since last June, due in particular to a rise in rental prices.
Determined to restore price stability
Although globally inflation is easing and the monetary institution expects it to come down to around 3% this summer, the bank is more concerned about the possibility that inflation will remain significantly stuck in the above the 2% target in 2024.
This new increase comes at a time when the rise in consumption has been surprisingly strong and generalized, contrary to the trend of the central bank’s estimates.
Canada’s gross domestic product (GDP) rose sharply in the first quarter, compared to the last quarter of 2022, (+3.1% at an annualized rate), well above analysts’ expectations.
Going forward, the Canadian central bank will specifically assess whether the evolution of excess demand, inflation expectations, wage growth and corporate pricing practices are consistent with achieving the inflation, she added, emphasizing that she remains determined to restore price stability.