Bank of Canada Hikes Rates To 22-Year High

The Bank of Canada has hiked its overnight rate to a 22-year high of 4.75%, and markets and analysts immediately forecast yet another increase next month to ratchet down an overheating economy and stubbornly high inflation, Steve Scherer and David Ljunggren reported for Reuters.

Photo Insert: Canada's central bank had been on hold since January to assess the impact of previous hikes after raising borrowing costs eight times since March 2022 to a 15-year high of 4.50%.

The central bank had been on hold since January to assess the impact of previous hikes after raising borrowing costs eight times since March 2022 to a 15-year high of 4.50% - the fastest tightening cycle in the bank's history.

Surprisingly strong consumer spending, a rebound in demand for services, a pick-up in housing activity, and a tight labor market show excess demand is more persistent than anticipated, the central bank said in a statement.

Noting an uptick in inflation in April and the fact that three-month measures of core inflation remained high, the Bank of Canada (BoC) said that "concerns have increased that CPI inflation could get stuck materially above the 2% target."

Given this backdrop, the governing council determined that "monetary policy was not sufficiently restrictive to bring supply and demand back into balance and return inflation sustainably to the 2% target."

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