Bank of Canada raises key interest rate by 25 basis points, signals end of hikes for now – National | globalnews.ca

The Bank of Canada delivered another hike to its key interest rate on Wednesday, but said this could be the peak of the current tightening cycle.

The central bank raised its policy rate to 4.5 percent in its first decision of 2023, an increase of 25 basis points. This is the Bank of Canada’s highest key rate since 2007.

Wednesday’s decision marks the eighth consecutive time the Bank of Canada has raised borrowing costs, raising the benchmark rate a total of 4.25 percent in the past year in an effort to control inflation.

Most economists expected the 25 basis point move.

But the central bank said in a statement accompanying the rate hike that it expects to keep the benchmark rate at its current level while it assesses the impact of its increases to date.

“We have raised rates quickly, and now is the time to pause and assess whether monetary policy is tight enough to bring inflation back to its two percent target,” Bank of Canada Governor Tiff said. Macklem, to reporters after Wednesday’s announcement.

He added that the withholding is “conditional” on whether the economy continues to develop according to his forecast, making it clear that further increases could be in play to bring inflation back down to the two percent target.

Headline inflation has cooled from a peak of 8.1% in mid-2022, most recently registering 6.3% in December.

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The Bank of Canada said on Wednesday in an updated set of projections that it expects inflation to “decrease significantly” in the coming months, reaching 3 percent by mid-2023 and 2 percent next year.

Here, too, policymakers added a caveat. Macklem acknowledged that the Bank’s inflation forecast largely depends on global factors such as energy prices. And while goods prices have shown improvement of late, inflation stickiness in the services sector is another risk to the Bank’s outlook, he said.

“Inflation is still above six percent. Yes, we are certainly seeing clear evidence… that inflation is coming down. But we have to be humble. There are a number of risks out there,” she said.

The pause in interest rate hikes could end if the Bank begins to see “accumulating evidence” that inflation and other economic indicators are not heading the way policymakers hoped, Macklem said.

Asked by reporters whether interest rates could start to decline, the central bank governor dismissed speculation amid money markets that a rate cut will take place before the end of 2023.

“It’s too early to talk about cuts,” he said.

More to come.

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