Bank of Canada Raises Interest Rate

Canada’s central bank on Wednesday raised its key interest rate by half a percentage point, its biggest move in two decades, in a bid to fight soaring inflation.

The Bank of Canada (BOC) raised its policy rate by 50 basis points to 1 percent.

The central bank said that it will also stop reinvesting in government bonds it bought during the COVID-19 pandemic to reduce liquidity in the markets, a move that is called quantitative tightening.

Governor Tiff Macklem said after the decision that more hikes should be expected.

“We are committed to using our policy interest rate to return inflation to target and will do so forcefully if needed,” Macklem said.

The BOC said that “there is an increasing risk that expectations of elevated inflation could become entrenched.”

Canada’s inflation hit 5.7 percent last month, well above the central bank’s target of 2 percent. The war in Ukraine has pushed prices of fuel and food to soar as it adds up to inflation that was already accelerating due to pandemic-induced shortages.

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