Bank of Canada raises interest rate to 2.5%, flags possible further hike
The Bank of Canada raised its benchmark interest rate by 0.25 percentage points to 2.5 per cent, citing persistent energy costs and broadening inflationary pressures. It warned another hike may be needed and revised up its inflation forecasts.
The Bank of Canada raised its benchmark interest rate by 0.25 percentage points to 2.5 per cent on Wednesday, in line with market expectations, and signalled that further tightening may be required.
The central bank said higher energy prices and stronger cost pass-through were making inflation more persistent. The rate increase was aimed at reducing the risk of price pressures spreading more broadly to other goods and services, it added.
“The Bank may need to raise interest rates again,” the central bank said in a statement, noting that the economic outlook faces “considerable uncertainty”, particularly related to trade relations with the United States.
The Bank of Canada revised up its inflation forecasts, predicting consumer prices will rise 2.9 per cent this year, up from a July estimate of 2.5 per cent. Next year’s inflation forecast was raised to 3.1 per cent from 2 per cent, reflecting the impact of persistently high energy costs. Inflation is expected to ease to 2.2 per cent by 2028.
On economic growth, the bank forecast the economy would expand 1 per cent this year, followed by 2 per cent growth in each of the next two years.