Bank of Canada increases benchmark interest rate for the first time since 2018

Bank of Canada increases benchmark interest rate for the first time since 2018

The Bank of Canada for the first time since 2018, has increased its target for the overnight rate to 0.50 per cent to restrict inflation.

According to the bank, more rate hikes will occur as it closely observes the happenings in Ukraine.

The bank said in a release, “The unprovoked invasion of Ukraine by Russia is a major new source of uncertainty.”

“Prices for oil and other commodities have risen sharply. This will add to inflation around the world, and negative impacts on confidence and new supply disruptions could weigh on global growth.”

On inflation, the Bank of Canada says generally price increases have become more pervasive.

According to the bank, “All told, inflation is now expected to be higher in the near term than projected in January.”

“Persistently elevated inflation is increasing the risk that longer-run inflation expectations could drift upwards.”

Canadian inflation hit levels not seen since 1991, up 5.1 per cent year over year.

Avery Shenfeld, chief economist at CIBC World Markets, the investment banking subsidiary of the Canadian Imperial Bank of Commerce said, “With the CPI likely to run hotter than we had expected through the first half of the year, odds are that the Bank will deliver the remaining three-quarter point hikes we had allocated for 2022 over the next three rate-setting dates, rather than spread out through the year.”

“We expect it to then pause at a 1.25% overnight rate to take stock of the direction for growth and inflation, and to let quantitative tightening operate as a tool for adjusting policy, before resuming rate hikes in 2023.”

 

 

This article was originally written by Jessy Bains, a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.

Author: Greg