The Bank of Canada hiked interest rates for the first time in four years in response to persistent inflationary pressures throughout the economy, assuring that borrowing costs will need to continue increasing despite growing geopolitical tensions between Russia and Ukraine.
On Wednesday, Canada’s central bank raised the overnight rate by 25 basis points to 0.50% as planned, and will maintain the reinvestment phase of its bond buying program. Up until now, borrowing costs have sat at a historic low of 0.25% since the beginning of the pandemic, marking the first time policy makers hiked rates since October 2018.
Annual inflation soared to 5.1% in January— the highest in nearly 30 years, and the tenth straight month of price pressures substantially above the Bank of Canada’s target range. Broad price increases were noted across all major sectors of the economy the bank recognized, adding that “persistently elevated inflation is increasing the risk that longer-run inflation expectations could drift upwards.”
As a result, the Bank of Canada said it would adhere to its schedule of additional rate hikes throughout the year. “As the economy continues to expand and inflation pressures remain elevated, the Governing Council expects interest rates will need to rise further,” policy makers said in a statement. But the bank did acknowledge that growing geopolitical risks stemming from the Russia-Ukraine conflict are a “major source of uncertainty,” adding that “prices for oil and other commodities have risen sharply. This will add to inflation around the world.”
Information for this briefing was found via the Bank of Canada. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
