BoC raises key interest rate to 5%, expects slower return to inflation target

The central bank hiked its key interest rate by a quarter of a percentage point, bringing it to five per cent.

"These decisions are difficult, and we did discuss the possibility of holding rates unchanged and gathering more information to confirm the need to raise the policy rate," Bank of Canada governor Tiff Macklem said. "If new information suggests we need to do more, we are prepared to increase our policy rate further. But we don’t want to do more than we have to," he said.

"Our own outlook is a more pessimistic one than the central bank's. We see more signs that the economic backdrop is softening," wrote Nathan Janzen, assistant chief economist at the Royal Bank of Canada. The Canadian economy was widely expected to stall this year, but instead, economic data has been stronger than most forecasters, including the central bank, had expected.

The central bank’s updated economic projections released in its monetary policy report suggest it will take Canada longer to get back to the two per cent target.

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