Bank of Canada Rate Announcement - September 7, 2022
September 7, 2022 | Posted by: Ken Fadel
As expected, the BoC today increased its target for the overnight rate 75 bps to 3.25%, the highest policy rate among major advanced economies. This marks the fifth consecutive rate hike by the Bank since March, as it attempts to tame high inflation which continues to hover well above the BoC target of 2.00%.
The bank stated that global and Canadian economies are generally evolving in line with their July projection. The ongoing effects of COVID-19 outbreaks, supply disruptions, and the war in Ukraine continue to stifle growth and raise prices.
CPI inflation eased in July to 7.6% from 8.1% due to a drop in gasoline prices. However the data indicates a further broadening of price pressures, particularly in services. The Bank’s core measures of inflation continued to move up, ranging from 5% to 5.5% in July. Current projections suggest that short-term inflation expectations remain elevated and the Bank remains concerned about higher prices becoming entrenched.
The Canadian economy continues to operate with excess demand and labour markets remain tight. Canada’s GDP grew by a weaker than expected 3.3% in the second quarter. As mortgage rates have increased, the housing market has receded as expected, following unsustainable growth during the pandemic. The Bank expects economic growth to moderate in the second half of 200, as global demand weakens and tighter domestic monetary policy begins to reduce demand more in line with supply.
Given the outlook for inflation, the BoC still believes that the policy interest rate will need to rise further. As the effects of tighter policy work its way through the economy, they will continue to monitor its impact. The Bank “remains resolute in its commitment to price stability and will continue to take action as required to achieve the 2% inflation target.”
The next scheduled date for announcing the overnight rate target is October 26, 2022. The Bank will publish its next full outlook for the economy and inflation at the same time.