Tuesday, December 06, 2022

Bank of Canada raises key interest rates by 50 basis points for the first time in 22 years – National | Nation World News

The country’s benchmark interest rate is rising by half a percentage point, the Bank of Canada announced Wednesday, raising rates by more than 25 basis points for the first time in more than two decades.


The central bank’s key overnight rate is now one percent.

This is the second consecutive interest rate hike in 2022 after the Bank of Canada raised rates by 25 basis points in March, breaking a period of stable rates at historic lows during the COVID-19 pandemic.

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Bank of Canada Governor Tiff McCalem said Canadians should expect interest rates to continue to move toward more normal levels.

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“By more general we mean within the range we consider for a neutral rate of interest which neither stimulates nor burdens the economy,” he said.

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The central bank has indicated that more rate hikes are taking place during the year to moderate inflation, which is now expected to be higher than initially projected during the first half of 2022.

The Bank of Canada says inflation is rising higher than previously expected due to rising prices of energy and other commodities in the wake of Russia’s invasion of Ukraine.

The bank now says that the annual inflation rate will average around six per cent in the first half of this year, compared to its forecast of around five per cent in January.

“The invasion of Ukraine has pushed up the prices of energy and other commodities, and the war is further disrupting global supply chains,” Macklem said.

“We are also concerned about the extension of price pressures in Canada.”

The Bank of Canada is also easing pandemic-era stimulus measures later this month by introducing so-called quantitative tightening, which will not replace the government bonds it holds when they mature.

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Prime Minister Justin Trudeau told reporters in the Montreal area while addressing the Bank of Canada’s move on Wednesday that the recently presented federal budget will help Canadians with rising interest rates.

He said this includes measures to help with the higher cost of housing, including a tax-free savings account buyers can use to buy their first home from next year onwards.

Trudeau says there is nothing governments can do to help with the rising cost of living, adding that his government is trying to implement measures that will not make the problem worse.

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Wednesday’s 50-basis-point increase was widely expected by economists and market watchers, who argued the central bank would have to act swiftly to bring inflation under control at large.

The Bank of Canada last raised interest rates by 50 basis points in May 2000.

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— With files from the Canadian Press

© 2022 Global News, a division of Corus Entertainment Inc.


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