Bank of Canada raises interest rates for the first time in three years
The central bank increased the key rate by a quarter point as soaring energy prices pushed up inflation.
The Bank of Canada (BoC) has raised its key interest rate for the first time in more than three years and warned that further increases might be needed to prevent soaring energy costs from fueling broader inflation.
Wednesday’s quarter-point hike to 2.5 percent was widely expected, while the bank also ramped up its inflation forecast for 2027 to 3.1 percent from the 2 percent it had predicted in July. Growth this year is set to be 1 percent, higher than the 0.7 percent seen in July.
“With the outlook for inflation substantially higher and the economy showing resilience, an increase in the policy rate is needed to reduce the risk that elevated energy prices could spill over and become generalised inflation,” BoC governor Tiff Macklem said.
Money markets are pricing in another 25 basis point rate cut in January and see the benchmark rate going up to 3.25 percent by December next year.