Bank of Canada Raises Interest Rates by Half a Percentage Point

The Bank of Canada raised interest rates by 0.5 percentage points. This is the largest single move in more than 20 years and has promised further increases to combat the rise in inflation partially driven by the Russia-Ukraine war. The central bank raised its interest rate from 0.5% to 1%. 

it also said that government bonds accumulated during the COVID-19 pandemic will roll off at maturity, allowing so-called quantitative tightening to begin.

Governor Tiff Macklem said, “We are committed to using our policy interest rate to return inflation to target and will do so forcefully if needed. The bank said that there was an increasing risk that inflation expectations could become entrenched. 

The Canadian dollar was around 1.2660, down 0.1% after the increase in interest rates was announced. The chief North American economist at Capital Economics, Paul Ashworth has said that he expected another 50 bps increase in June. 

The Reserve Bank of New Zealand also increased rates by 5- bps to 1.50% earlier this week, and the US Federal Reserve is also expected to increase half-point interest rates in May and June as central banks seek to tackle runaway inflation.