The Bank of Canada’s four-month pause on interest rate hikes came to an end on Wednesday morning.
The central bank raised its key interest rate 25 basis points to 4.75 per cent — the highest since April 2001.
“While economic growth around the world is softening in the face of higher interest rates, major central banks are signalling that interest rates may have to rise further to restore price stability,” the Bank of Canada said in a statement.
Officials said while consumer price inflation is coming down, underlying inflation remains “stubbornly” high.
Statistics Canada said CPI inflation ticked up to 4.4 per cent in April, the first increase in 10 months.
While the central bank still expects inflation to ease to around three per cent this summer, there are increasing concerns that it could get “stuck” above its two per cent target.
The Bank of Canada also noted that Canada’s economy was stronger than expected in the first quarter, with GDP growth of 3.1 per cent.
Consumer spending was “surprisingly strong” last quarter and housing market activity has picked up.
The labour market also remains tight, the bank said, with new workers being quickly hired, reflecting strong demand for labour.
“Overall, excess demand in the economy looks to be more persistent than anticipated,” said the bank.
The bank’s next scheduled rate announcement is expected on July 12.
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