The Bank of Canada raised its key interest rate by half of a percentage point to 3.75 per cent on Wednesday, Oct. 26 making it one of the fastest monetary policy tightening cycles in its history.
It is the sixth consecutive time the central bank has raised the interest rate this year in response to decades-high inflation.
After keeping its interest rate at 0.25 per cent for two years, the Bank of Canada first raised its overnight lending rate to 0.50 per cent in March.
Since then, it has continued to raise it every month, with an increase of a full percentage point in July — making it the largest single rate hike since August 1998.
In its monetary policy report, the central bank said rates will need to rise further due to inflationary pressures.
“Inflation around the world remains high and broadly based. This reflects the strength of the global recovery from the pandemic, a series of global supply disruptions, and elevated commodity prices, particularly for energy, which have been pushed up by Russia’s attack on Ukraine,” the Bank of Canada said.
The central bank is projecting that inflation will slow to three per cent at the end of this year before it gets to its target of two per cent in 2024.
In September, the annual inflation rate in Canada cooled slightly to 6.9 per cent but the cost of groceries continued to climb. Grocery prices rose at the fastest rate since August 1981, with prices up 11.4 per cent compared with a year ago.
The latest rate update comes amid growing fears that a recession is around the corner. The Bank of Canada said it expects the global economic growth to slow from three per cent this year to around 1.5 per cent in 2023, but will rebound to around 2.5 per cent in 2024.
With files from The Canadian Press