Image: Supplied by CFJC Today / The Bank of Canada raised its policy interest rates to 2.5 per cent today.

By Mike Vanden Bosch

Interest rates

Bank of Canada raises policy interest rates 100 basis points to 2.5 per cent

Jul 13, 2022 | 1:42 PM

CHILLIWACK — The Bank of Canada announced today that it has increased its target for the overnight rate to 2.5 per cent, marking an increase of 100 basis points and the biggest policy rate hike in 24 years dating back to 1998.

Inflationary pressures remain higher and more prolonged than the Bank of Canada anticipated in its April Monetary Policy Report, the central bank reported. Inflation is expected to hover around 8 per cent for the next few months.

The central bank acknowledged ongoing geopolitical factors like the war in Ukraine, but said domestic price pressures from excess demand are becoming more pronounced.

Consumer surveys indicate more consumers and businesses expect inflation to be higher in the long run, the Bank of Canada said, raising the risk that elevated inflation becomes entrenched in price-setting and wage-setting.

Oil prices remain high and volatile, the central bank said, while labour markets are tight with record-low unemployment rates, widespread labour shortages and increasing wage pressures. Due to strong demand, businesses are passing on higher input and labour costs by increasing prices to consumers, the Bank of Canada reported.

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The central bank expects Canada’s economy to grow by only 3.5 per cent in 2022, 1.75 per cent next year, and 2.5 per cent in 2024.