BoC warning us they're not done yet with rate hikes: Warren Lovely
The Bank of Canada raised its key policy rate three-quarters of a point to 3.25 per cent Wednesday.
The move is a slight moderation from an aggressive move by the Canadian central bank that raised its benchmark rate by a full percentage point in its most recent rate decision in July.
This marks the fifth consecutive interest rate hike by the bank since March, as it attempts to tame high inflation, which surged 7.6 per cent in July compared to a year earlier — well ahead of the Bank of Canada’s goal of keeping inflation at two per cent.Inflation did decline in July from the 8.1 per cent figure Statistics Canada reported in June.
Prior to July’s full-point hike, the Bank of Canada raised its benchmark rate with half-point moves at the two previous meetings.
The bank launched its rate-hiking campaign in March with a quarter-point increase.
Wednesday’s policy adjustment was in line with what economists tracked by Bloomberg expected.
READ THE FULL STATEMENT FROM THE BANK OF CANADA
"The Bank of Canada today increased its target for the overnight rate to 3¼%, with the Bank Rate at 3½% and the deposit rate at 3¼%. The Bank is also continuing its policy of quantitative tightening.
The global and Canadian economies are evolving broadly in line with the Bank’s July projection. The effects of COVID-19 outbreaks, ongoing supply disruptions, and the war in Ukraine continue to dampen growth and boost prices.
Global inflation remains high and measures of core inflation are moving up in most countries. In response, central banks around the world continue to tighten monetary policy. Economic activity in the United States has moderated, although the US labour market remains tight. China is facing ongoing challenges from COVID shutdowns. Commodity prices have been volatile: oil, wheat and lumber prices have moderated while natural gas prices have risen.
In Canada, CPI inflation eased in July to 7.6% from 8.1% because of a drop in gasoline prices. However, inflation excluding gasoline increased and data indicate a further broadening of price pressures, particularly in services. The Bank’s core measures of inflation continued to move up, ranging from 5% to 5.5% in July. Surveys suggest that short-term inflation expectations remain high. The longer this continues, the greater the risk that elevated inflation becomes entrenched.
The Canadian economy continues to operate in excess demand and labour markets remain tight. Canada’s GDP grew by 3.3% in the second quarter. While this was somewhat weaker than the Bank had projected, indicators of domestic demand were very strong – consumption grew by about 9½% and business investment was up by close to 12%. With higher mortgage rates, the housing market is pulling back as anticipated, following unsustainable growth during the pandemic. The Bank continues to expect the economy to moderate in the second half of this year, as global demand weakens and tighter monetary policy here in Canada begins to bring demand more in line with supply.
Given the outlook for inflation, the Governing Council still judges that the policy interest rate will need to rise further. Quantitative tightening is complementing increases in the policy rate. As the effects of tighter monetary policy work through the economy, we will be assessing how much higher interest rates need to go to return inflation to target. The Governing Council remains resolute in its commitment to price stability and will continue to take action as required to achieve the 2% inflation target."