The central bank of Canada on Wednesday raised its key rate by 0.75 points to 3.25%, bringing it to its highest in 14 years, and estimated that further hikes were to be expected due to galloping inflation.
Given the outlook for inflation, the Governing Council still believes that the key rate will have to increase further, writes the Bank of Canada in a press release.
It also said it would continue its quantitative tightening (reduction in the size of its balance sheet), used as a complementary tool for these increases.
This is the fifth increase this year in the Bank of Canada’s key rate, which has been trying for months now to bring annual inflation close to its target, which is set at 2%.
The rise in consumer prices has reached levels unmatched for 40 years in the country in recent months. Inflation stood at 7.6% in July over one year, after peaking at 8.1% in June.
Surveys indicate that short-term inflation expectations remain elevated. And the longer they remain, the more high inflation is likely to take root, noted the bank.
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The latter also notes that the effects of Covid-19 outbreaks, ongoing supply disruptions and the war in Ukraine continue to dampen growth and drive up prices.