The Bank of Canada raised its key interest rate on Wednesday for the fifth time and hinted at more increases in the coming months.
The overnight rate now stands at 3.25 per cent, an increase of three-quarters of a percentage point.
In a release, the central bank said the effects of COVID-19, ongoing supply disruptions, and the war in Ukraine continue to dampen growth and boost prices.
“Global inflation remains high and measures of core inflation are moving up in most countries. In response, central banks around the world continue to tighten monetary policy,” said the release.
July’s inflation rate was logged at 7.6 per cent, which was down slightly from 8.1 per cent the month before due to a drop in gasoline prices.
However, the Bank of Canada said inflation excluding gasoline increased and data indicate a further broadening of price pressures, particularly in services.
“Surveys suggest that short-term inflation expectations remain high. The longer this continues, the greater the risk that elevated inflation becomes entrenched,” said the central bank.
The Bank of Canada said further rate hikes are likely to achieve the inflation target of two per cent, but how much higher those rates will need to go remain to be seen.
The central bank also noted that our country’s economy continues to operate in “excess demand” and labour markets remain tight.
Officials still expect the economy will moderate in the second half of this year and global demand weakens and tighter monetary policy in Canada begins to bring demand more in line with supply.
The next interest rate announcement is scheduled for Oct. 26.
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