In an effort to tackle continued inflationary pressures and “excess demand in the economy,” the Bank of Canada has raised its key interest rate again.
The 25 basis points hike now brings the Bank of Canada’s key interest rate to 5%, the highest its been since 2001.
“Global inflation is easing, with lower energy prices and a decline in goods price inflation. However, robust demand and tight labour markets are causing persistent inflationary pressures in services,” says the Bank of Canada in their release.
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In their Monetary Policy Report, the Bank of Canada says “greater excess demand and more stubborn core inflation are sustaining underlying price pressures”.
Inflation in Canada has declined from 8.1% in June 2022 to 3.4% in May 2023 in part due to lower energy prices, improvements in global supply chains and higher interest rates.
During the first quarter of 2023, there was strong demand in the economy and the Bank says “growth over the first half of the year will likely surpass expectations at the time of the January Report”.
Strong immigration numbers helped the economy grow and the housing market continues to see strong demand. Supply remains tight across the country and house prices increased in May for the second consecutive month.
The Bank of Canada’s revised outlook has them predicting that inflation will reach the 2% target in the “middle of 2025”.
The next scheduled date for announcing the overnight rate target is September 6th.