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

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The Bank of Canada says the rate hike was prompted by elevated demand in the economy driven by strong consumer spending, as well as signs that prices continue to rise rapidly.

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

"On balance, our assessment was that the cost of delaying action was larger than the benefit of waiting." "These decisions will be guided by our assessment of incoming data and the outlook for inflation. We need to see demand growth slow, wage pressures moderate and corporate pricing behaviour normalize."

"That should be enough to push the BoC back on the sidelines with no additional interest rate increases this year. But they are clearly willing to hike again at the next decision in September if inflation in particular doesn't show further signs of easing," Janzen said in a note. And although inflation has fallen considerably since last summer, prices for many goods and services continue to rise rapidly.

 

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