Bank of Canada raises interest rate: Read the official statement

The Bank of Canada's interest rate decision on June 1, 2022, is here.

The overnight rate was increased by the Bank of Canada to 1.5 per cent, the Bank Rate was increased to 1.75 per cent and the deposit rate was increased to 1.5 per cent. The Bank has a policy of quantitative tightening.

Higher prices for energy and food are driving inflation in Canada. In Canada, the inflation rate for the month of April was well above the Bank's forecast and will likely move even higher in the near term. Core measures of inflation range between 3.2 and 5.1 per cent as input price pressures feed into consumer prices. Almost 70 per cent of the categories show inflation over three per cent. The risk of inflation becoming entrenched has gone up. The Bank will use monetary policy tools to return inflation to target.

As the global economy slows, global inflation is increasing. The Russian invasion of Ukraine, China's COVID-related lockdowns, and ongoing supply disruptions are all weighing on activity and boosting inflation. The war is putting upward pressure on prices for energy and agricultural commodities. The outlook is not good in Europe. Despite the economy contracting in the first quarter of 2022, private domestic demand in the United States remains robust. Wage pressures are intensifying in the US labour market. Markets have been volatile.

Canadian economic activity is strong and the economy is operating in excess demand. GDP growth for the first quarter of the year was in line with the Bank's April Monetary Policy Report. Job vacancies are elevated, companies are reporting labour shortages, and wage growth is broadening across sectors. The housing market activity is not as high as it used to be. Growth in the second quarter is expected to be solid because of consumer spending and exports.

With the economy in excess demand and inflation expected to move higher in the near term, the Governing Council continues to judge that interest rates will need to rise further. The policy interest rate is the Bank's primary monetary policy instrument. The pace of further increases in the policy rate will be guided by the Bank's assessment of the economy and inflation, and the Governing Council is prepared to act more forcefully if needed to meet its commitment to achieve the two per cent inflation target.

The Financial Post is a division of Postmedia Network Inc.

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