Bank of Canada raises its key policy rate by .25% to 4.75%

The Bank of Canada increased the overnight rate today to 4.75% citing persistent inflation at 4.4%, a hot job market and stronger than expected economy. 

By raising the overnight rate, the expected effect in the coming months is: "In our baseline forecast, the labour market will soften as the economy slows. Wage growth will ease. Businesses will revert to more normal price-setting behaviour. And near-term inflation expectations will come into line with the inflation target," said Bank of Canada Governor Tiff Macklem recently.  

With inflation at twice the Bank of Canada's target rate of 2%, housing-market activity that has dramatically increased this spring fuelling an uptick in home prices and the economy showing no signs of softening could lead to even a further Bank of Canada increase this year. However, most Canadian economists believe the Bank of Canada will leave its key interest rate at 4.75% for the duration of 2023 even though the Bank of Canada left the door open to more tightening. The next official inflation announcement is scheduled for June 27, 2023.


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Today’s Bank of Canada rate hold announcement marks almost four straight years that the key benchmark rate has remained unchanged, since September 8, 2010. Great news if you have a variable-rate mortgage or home equity line of credit; the prime rate stays at 3%.


The announcement noted that “the risks to the outlook for inflation remain roughly balanced, while the risks associated with household imbalances have not diminished.” With these considerations, the Bank is maintaining its monetary policy stimulus, and remains neutral with respect to the timing and direction of the next change.


The next rate-setting day is October 22nd.

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