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Canada

Bank of Canada raises policy rate to 2.5% on higher energy-driven inflation outlook

The first rate increase since July 2023 signals the central bank's concern that energy price pressures could spread into broader inflation for businesses and households.

Photo: Yahoo Finance

What happened

The Bank of Canada raised its policy interest rate by 25 basis points to 2.5%, its first increase since July 2023. Bank of Canada+1 The central bank said the outlook for inflation had deteriorated, as global oil prices rose with the war in the Middle East and were expected to stay higher for longer. Bank of Canada+1 Governor Tiff Macklem told a House of Commons finance committee that an increase was needed to reduce the risk that elevated energy prices could spill over into generalized inflation. Yahoo Finance Macklem also told a Senate committee that the growth outlook for Canada had improved modestly despite continued trade actions by the United States. Bank of Canada

Around it

Macklem said the bank could no longer look through the energy price shock and that cost pressures and expectations of firms raising prices over the next 12 months had built up. Yahoo Finance+1 He said rate policy would still provide support for an economy that is improving but not necessarily strong. Morningstar Macklem said uncertainty remained elevated because of geopolitical conflict in the Middle East and renewed trade tensions between Canada and the United States. Yahoo Finance+1

What comes next

Macklem said there could be a need to raise rates further, and the bank would take a cautious approach to future policy rate decisions. Yahoo Finance+1

Sources

  1. Bank of CanadaOpening Statement to the Standing Senate Committee on Banking, Commerce and the Economy
  2. Yahoo FinanceBank of Canada can no longer look through energy price shock, Macklem warns MPs
  3. MorningstarBank of Canada Gov. Macklem Pledges to Proceed Carefully on Further Rate Increases

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