Bank of Canada raises interest rate: Read the official statement

Here is the official statement from the Bank of Canada.

The overnight rate was increased to 2.5 per cent by the Bank of Canada. The policy of quantitative tightening is being continued by the bank.

The Bank expects inflation in Canada to stay around eight per cent in the next few months, but it's more than that. Domestic price pressures from excess demand are becoming more prominent as a result of global factors such as the war in Ukraine and supply disruptions. More than half of the components are going up in price. The Bank's core measures of inflation have gone up to between 4% and 5%. The risk of elevated inflation becoming entrenched in price- and wage-setting is raised by the fact that more consumers and businesses are expecting inflation to be higher for longer. It will cost more to restore price stability if that happens.

The impact of the Russian invasion of Ukraine is one of the factors that has increased global inflation. The tighter financial conditions are a result of the central banks trying to fight inflation. The United States has high inflation and rising interest rates that are making it hard for people to buy things. China's economy is being held back by restrictions to contain the COVID-19 outbreak. The price of oil is high and unpredictable. The Bank expects global economic growth to slow to 3.5 per cent this year and two per cent in the next two years before increasing to three per cent in four years.

Excess demand has built up in Canada. There is a record low unemployment rate and tight labour markets. Businesses are raising prices due to strong demand. Spending on hard-to-distance services rebounded in the last year. Exports are being boosted by elevated commodity prices. According to the Bank, GDP grew by 4% in the second quarter. Growth is expected to slow to two per cent in the third quarter, as consumption growth moderates and housing market activity pulls back.

Canada's economy is expected to grow by 3.5 per cent in 2022, 1.75 per cent in 2023, and 2.5 per cent in 2024 according to the bank. As tighter monetary policy works its way through the economy, economic activity will decline. The resolution of supply disruptions will bring demand and supply back into balance. Energy prices are expected to decline. Inflation is expected to ease to three per cent by the end of next year and return to the two per cent target by the end of 2024 according to the July forecast.

With the economy in excess demand, inflation high and broadening, and more businesses and consumers expecting high inflation to persist for longer, the Governing Council decided to raise the policy rate by 100 basis points. Interest rates will need to rise further, and the pace of increases will be guided by the Bank's assessment of the economy and inflation. The policy interest rate is increasing. The council is determined to achieve the two per cent inflation target and will continue to take action to do so.

Information note

The next time the overnight rate target will be announced is in September of 2022. The Bank's next full outlook for the economy and inflation will be published in the MPR.

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