The Bank of Canada raised its key interest rate by a quarter-percentage point today, marking the first interest rate change since the central bank announced a pause earlier this year.The Bank of Canada says its governing council determined interest rates are not high enough to rebalance the economy and bring inflation back to the two per cent target.
The decision today comes after speculation among economists and forecasters that a recent string of strong economic data would push the central bank to raise interest rates again. The central bank says excess demand in the economy appears to be more persistent than it had anticipated, citing a tight labour market, better-than-expected economic growth in the first quarter as well as “surprisingly strong” consumption growth.
It says it still expects inflation to fall to about three per cent in the summer from the 4.4 per cent April reading, but with core inflation still elevated, its concerns about inflation getting stuck above two per cent have increased.
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