Canada raises interest rates by 75 basis points

ANKARA

The Bank of Canada on Wednesday hiked interest rates by 75 basis points, in line with market expectations.

The target for the overnight rate has been increased to 3.25%, with the bank rate now at 3.5% and the deposit rate climbing to 3.25%.

The bank said it is continuing its policy of quantitative tightening to rein in inflation.

“The global and Canadian economies are evolving broadly in line with the Bank’s July projection. The effects of COVID-19 outbreaks, ongoing supply disruptions, and the war in Ukraine continue to dampen growth and boost prices,” read a bank statement.

The decision follows an increase of 100 basis points made on July 13, which was the steepest rate hike since August 1998.

Consumer inflation in Canada eased to 7.6% in July, from 8.1%, due to a drop in gasoline prices.

However, the bank said, “inflation excluding gasoline increased and data indicate a further broadening of price pressures, particularly in services.”

“The Bank’s core measures of inflation continued to move up, ranging from 5% to 5.5% in July. Surveys suggest that short-term inflation expectations remain high. The longer this continues, the greater the risk that elevated inflation becomes entrenched,” the statement said.

The bank noted that Canada’s GDP grew 3.3% in the second quarter, weaker than its projection, while it expects the economy to moderate in the year’s second half as global demand weakens and tighter monetary policy starts “to bring demand more in line with supply.”