Canada’s Overnight Interest Rate Target Lifted 25 Basis Points to 21-Year High of 4.75%
June 7, 2023
The Bank of Canada had paused its cycle of interest rate tightening after raising its target from 0.25% prior to March 2022 to 4.50% with a 25-bp hike this past January. That pause ended today with the unexpected 25-basis point increase to 4.75%, and a released statement fails to say one way or the other if more hikes are likely.
Canada’s economy was stronger than expected in the first quarter of 2023, with GDP growth of 3.1% at a seasonally adjusted annualized rate. CPI inflation ticked up in April to 4.4%, the first increase in 10 months, with prices for a broad range of goods and services coming in higher than expected. With three-month measures of core inflation running in the 3½-4% range for several months and excess demand persisting, concerns have increased that CPI inflation could get stuck materially above the 2% target. Quantitative tightening is complementing the restrictive stance of monetary policy and normalizing the Bank’s balance sheet. Governing Council will continue to assess the dynamics of core inflation and the outlook for CPI inflation. In particular, we will be evaluating whether the evolution of excess demand, inflation expectations, wage growth and corporate pricing behavior are consistent with achieving the inflation target.
Like Tuesday’s central bank rate hike in Australia, today’s in Canada was not anticipated by many analysts.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Canada
ShareThis
