Bank of Canada ends pause on hikes, raises policy rate by 25 basis points

Bank of Canada ends pause on hikes, raises policy rate by 25 basis points

The Bank of Canada ended its interest rate pause on Wednesday as it looks to stamp out inflation and cool the country’s red-hot economy.

The central bank raised its benchmark interest rate to 4.75 per cent, an increase of a quarter-percentage point in its first hike since January. The policy rate, which sets the cost of borrowing in Canada, now stands at its highest level since May 2001.

The Bank said in a statement accompanying the decision that policymakers felt the previous rate of 4.5 per cent was “not sufficiently restrictive” to bring inflation back down to its two per cent target.

The return to rate hikes comes after two consecutive decisions in March and April when the Bank left its key rate unchanged.

The central bank had said it would keep its rate hikes on pause until it saw an “accumulation of evidence” that its policy rate was not restrictive enough to bring inflation down to two per cent.

Following a series of monthly declines, the annual inflation rate ticked up to 4.4 per cent in April from 4.3 per cent in March.

Canada’s economic output also came in stronger than expected in the first quarter of the year and the country’s labour market has shown little signs of weakness.

The next scheduled rate announcement is expected on July 12, 2023.