Canada’s central bank raised its key rate from 1% to 1.5% on Wednesday to fight inflation, which “should rise further in the short term before starting to decline”, she said.
The Bank of Canada has also warned that due to excess demand in the economy and inflation, interest rates will have to rise further.
It also specifies that it will continue its quantitative tightening policy.
In April, the central bank raised its rate from 0.5% to 1%, the first major hike since May 2000.
The institution points out that the Russian invasion of Ukraine, the confinements linked to the Covid-19 pandemic in China and the persistence of supply disruptions in the world contribute to the increase in inflation, which reached a peak in Canada in over 30 years.
Extraordinary times call for extraordinary measures, said Royce Mendes, economist at Desjardins, in a note where he evokes a particularly rapid upward cycle.
According to him, since the central bank says it is ready to act more forcefully if necessary, this clearly opens the door to a 75 basis point hike at the next announcement in July.
In Canada, economic activity is strong, and it is clear that the economy is in a situation of excess demand, the central bank said, adding that the number of job vacancies is high and companies are reporting shortages of generalized workforce.
The unemployment rate in Canada has indeed reached a historically low level in the country, where growth was 3.1% in the first quarter.
Inflation stood at 6.8% in April, mainly due to rising food and housing prices.