Bank of Canada raises interest rate 100 bps, maintains quantitative tightening.

The Bank of Canada raised its overnight rate goal to 2.5%, with the Bank Rate at 2.4% and the deposit rate at 2.5%. The Bank’s quantitative tightening continues (QT).

Inflation in Canada is higher and more persistent than the Bank predicted in its April MPR, and will likely continue above 8% in the next several months. Global reasons like the Ukraine crisis and supply interruptions have been the primary drivers, but surplus demand is becoming increasingly prevalent. More than half of CPI components are up more than 5%. With expanding price pressures, the Bank’s core inflation gauges have risen to 3.9% to 5.4%. More consumers and companies anticipate inflation to continue high for longer, heightening the danger that price- and wage-setting become stuck in inflation. If so, restoring price stability will cost more.

The Russian invasion of Ukraine, supply restrictions, and strong demand have boosted global inflation. Many central banks are tightening monetary policy to battle inflation, which is slowing economic development. High inflation and increasing interest rates restrict U.S. domestic consumption. China’s economy is hampered by COVID-19-related restrictions. Volatile oil prices persist. The Bank anticipates global economic growth to decline to 3.5% this year, 2% in 2023, and 3% in 2024.

Canada has more surplus demand. Record low unemployment, labour shortages, and wage pressures tighten labour markets. Businesses are boosting prices due to increased demand and rising material and labour expenses. Spending on hard-to-distance services has boosted consumption. High commodity prices encourage business investment and exports. The Bank thinks second-quarter GDP rose 4%. Consumption growth and housing market activity are projected to drop in the third quarter after the pandemic’s unsustainable strength.

The Bank predicts 3.5% economic growth in 2022, 1.4% in 2023, and 2.5% in 2024. Global growth and stricter monetary policy will hinder economic activity. This, together with resolving supply problems, will balance demand and supply and reduce inflationary pressures. Global energy costs should fall. Inflation is expected to start falling later this year, reach 3 percent by the end of 2019, and reach 2 percent by 2024.With the economy in overdrive, inflation high and widening, and companies and consumers anticipating high inflation to last longer, the Governing Council agreed to raise the policy rate by 100 basis points today. The Bank’s continual evaluation of the economy and inflation will influence the pace of rate hikes, according to the Governing Council. Quantitative tightening complements interest rate hikes. The Governing Council is committed to price stability and will take measures as needed to achieve 2% inflation. Shop now for bullion products from Au Bullion.