Bank of Canada raises interest rate: Read the official statement

The Bank of Canada's interest rate decision was made on March 2, 2022.

The overnight rate was increased by the Bank of Canada to 0.50 per cent, the Bank Rate was increased to 0.75 per cent and the deposit rate was increased to 0.50 per cent. The Bank is keeping its holdings of Government of Canada bonds constant on its balance sheet until it is appropriate to allow the size of its balance sheet to decline.

Russia's invasion of Ukraine is a new source of uncertainty. The price of oil and other commodities has gone up. Negative impacts on confidence and new supply disruptions could weigh on global growth. Financial market volatility has gone up. We are following the situation closely.

Global economic data has come in line with projections in the Bank's January Monetary Policy Report. The impact of the Omicron variant of COVID-19 has been more pronounced than expected and the virus continues to circulate. In the United States, demand is strong. There are indications that some constraints have been alleviated.

In the fourth quarter of last year, Canada's economy grew at a rate of 6.7 per cent. The Bank believes that economic slack has been absorbed. Solid global demand is consistent with both exports and imports picking up. The labour market in Canada suffered a blow in January due to the Omicron variant, with temporary layoffs in service sectors. With the lifting of public health restrictions, the rebound from Omicron appears to be well in train, as household spending is proving resilient and should strengthen further. Further pressure to house prices is added by housing market activity being more elevated. First-quarter growth is looking better than previously thought.

In January, the inflation rate was 5.1 per cent, which is above the Bank's target range. Measures of core inflation have all risen, as price increases have become more pervasive. Food prices have gone up due to poor harvests and higher transportation costs. The invasion of Ukraine is putting upward pressure on food and energy prices. Inflation is expected to be higher in the near term than it was in January. There is a risk that inflation expectations could drift upwards. The Bank will use monetary policy tools to return inflation to the 2 per cent target.

The policy rate is the primary monetary policy instrument. The Governing Council expects interest rates to need to rise further as the economy continues to expand. When to end the reinvestment phase and allow the holdings of Government of Canada bonds to begin to shrink will be considered by the Governing Council. The policy interest rate would increase in tandem with the quantitative tightening. The Bank's assessment of the economy and its commitment to achieving the 2% inflation target will guide the timing and pace of further increases in the policy rate.