Bank of Canada hikes interest rate to 4.5%, highest mark since 2007

Canada’s key interest rate has risen for an eighth straight month.

The Bank of Canada on Wednesday announced it had raised the rate by a quarter of a percentage point to 4.5 per cent, its highest mark since 2007.

The bank said if economic developments remain in line with its projections, it expects this will be the last rate hike of the cycle. However, the bank added, it will increase the rate if needed to get inflation back to the bank’s target of two per cent.

In a media release, the bank said it also will continue its strategy of “quantitative tightening” as it continues to battle inflation.

The central bank said inflation fell from 8.1 per cent in June to 6.3 per cent in December, largely thanks to falling gasoline prices and better prices for durable goods.

“Despite this progress, Canadians are still feeling the hardship of high inflation in their essential household expenses, with persistent price increases for food and shelter,” the bank’s statement said.

“Short-term inflation expectations remain elevated. Year-over-year measures of core inflation are still around five per cent, but three-month measures of core inflation have come down, suggesting that core inflation has peaked.

“Inflation is projected to come down significantly this year. Lower energy prices, improvements in global supply conditions, and the effects of higher interest rates on demand are expected to bring CPI inflation down to around three per cent in the middle of this year and back to the two per cent target in 2024.”

The bank says Canada’s economy grew by 3.6 per cent in 2022, which is better than was projected in October. It expects growth to stall midway through this year before picking up later in the year.

“In Canada, recent economic growth has been stronger than expected and the economy remains in excess demand,” the bank’s release said. “Labour markets are still tight: the unemployment rate is near historic lows and businesses are reporting ongoing difficulty finding workers.

“However, there is growing evidence that restrictive monetary policy is slowing activity, especially household spending. Consumption growth has moderated from the first half of 2022 and housing market activity has declined substantially.”

The next scheduled date to announce the key interest rate is March 8.

— With files from The Canadian Press