Bank of Canada raises interest rates, says it will take a 'conditional' pause

The central bank raised its key interest rate by a quarter of a percentage point Wednesday, marking the eighth consecutive hike since March in the face of decades-high inflation.In a news release, the Bank of Canada said the Canadian economy is still overheated, prompting its governing council to raise interest rates once again.

The rate hike Wednesday comes after months of inflation slowing in Canada. After peaking at 8.1 per cent in the summer, the country's annual inflation rate has steadily declined and reached 6.3 per cent in December. The slowdown in inflation has been attributed to declines in energy prices as well as easing in global supply chain disruptions.

While the Bank of Canada has previously raised concerns about strong wage growth potentially feeding into inflation, it now says risks around a wage-price spiral have declined as wage growth has plateaued. After growing by 3.6 per cent in 2022, the Bank of Canada is projecting the economy will grow by a modest one per cent in 2023.

"They have to find balance between making sure inflation comes down to a reasonable level and overtightening," he said.Globally, the central bank said growth has been stronger than expected as consumers have continued to spend.

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