Canada’s central bank continued its campaign to wrestle high inflation into submission on Wednesday, raising its benchmark interest rate by 50 basis points to 3.75 per cent.
The Bank of Canada‘s rate — officially known as the target for the overnight rate — is the amount that retail banks are charged for short-term loans.
But it filters down into the economy by influencing the rates that Canadians get from their own lenders on things like savings accounts and mortgages.
After slashing its lending rate to near zero early in the pandemic, the bank has raised its benchmark rate six times since March, as it scrambles to rein in inflation, which has run up to its highest level in decades.
While the move will likely help bring down the cost of living in the long run by compelling Canadians to spend and borrow less, it will only increase the pain for consumers and businesses that are already feeling the pain of inflation and higher borrowing costs.
The bank was widely expected to raise its rate, as the country’s inflation rate is still more than twice as high as the range it likes to see. But the increase of 50 basis points is less than the 75 points that some economists and investors were anticipating.
That could be a sign the central bank is nearing the end of its rate-hiking cycle, but in its statement the bank made it clear it still thinks more hikes are coming.
“The Governing Council expects that the policy interest rate will need to rise further,” the bank said. “Future rate increases will be influenced by our assessments of how tighter monetary policy is working to slow demand, how supply challenges are resolving, and how inflation and inflation expectations are responding.”