Bank of Canada Raises Policy
Rate by 25 Basis Points
The Bank of Canada has raised its target for the overnight rate by 25 basis points to 4.75%. They also continue their policy of quantitative tightening. Globally, consumer price inflation is decreasing due to lower energy prices, but underlying inflation remains high. Major central banks are considering further interest rate hikes to restore price stability.
Canada’s economy performed better than expected in the first quarter of 2023, with GDP growth of 3.1%. Consumption growth was strong and broad-based, and there was an increase in spending on interest-sensitive goods. The housing market also saw an uptick in activity and the labour market remained tight despite increased immigration and participation rates. CPI inflation increased in April to 4.4%, which was the first increase in 10 months.
The Bank of Canada increased interest rates to address the persistent excess demand and potential inflation risks. The Bank aims to restore price stability and will monitor core inflation dynamics, excess demand, inflation expectations, wage growth, and corporate pricing behaviour.
The Bank remains committed to achieving the 2% inflation target and will provide a comprehensive outlook for the economy and inflation in the Monetary Policy Report to be released in July. The next scheduled date for announcing the overnight rate target is July 12, 2023.