The Bank of Canada (BoC) has announced raising interest rates by 100 basis points, or 2.5%, marking the biggest one-time increase since 1998.
The BoC also said that it would keep up its quantitative easing policy and set its bank rate at 2.75% deposit rate at 2.5%.
In an effort to counteract rising inflation rates, which are currently at 7.7%, the highest level since 1983, the BoC has hiked interest rates four times since March.
“With the economy clearly in excess demand, inflation high and broadening, and more businesses and consumers expecting high inflation to persist for longer, the Governing Council decided to front-load the path to higher interest rates by raising the policy rate by 100 basis points today,” wrote the Bank of Canada in a news release.
Many analysts were surprised by the decision to raise the interest rate by a whole 100 basis points because they had anticipated a 75 basis point increase, according to BNN Bloomberg.
Governor of the BoC Tiff Macklem warned more hikes in the future.
The bank says its Governing council “continues to judge that interest rates will need to rise further, and the pace of increases will be guided by the Bank’s ongoing assessment of the economy and inflation.”
The Bank of Canada anticipates that high inflation rates will continue in the coming months.
According to an accompanying monetary policy report, Canada’s inflation rate should fall to 7.5 percent by the end of the year, with the 2 percent target only being reached by the end of 2024.
The outlook for the Canadian economy has also weakened, with experts now seeing a gross domestic product expansion of 3.5% this year and a 1.8% increase next year, down from 4.2% and 3.2% in April.
In response to the increase, Conservative MP and leadership candidate Pierre Poilievre stated that the new “jumbo rate hike of 1%” is a direct result of what he refers to as “JustinFlation.”
The Bank of Canada has been under fire by Poilievre very vocal criticism promising he will fire Macklem if elected Prime Minister. He accuses the BoC for printing mad amounts of cash for Justin Trudeau to continue unsustainable spending.
The BoC’s overnight rate target announcement is scheduled for September 7.
