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Thu Sep 8, 2022, 08:03 AM

Bank of Canada Raises Interest Rates to 14-Year High

WORLD | CANADA

Bank of Canada Raises Interest Rates to 14-Year High

Central bank says rates need to increase further to return inflation to 2% target

By Paul Vieira
Reporter, Ottawa Bureau, The Wall Street Journal
https://twitter.com/PaulVieira
Paul.Vieira@wsj.com
Updated Sept. 7, 2022 10:58 am ET

OTTAWA—The Bank of Canada delivered another hefty increase to its main interest rate, taking it above 3% for the first time in over 14 years, and said rates need to go higher to tame inflation.

The Bank of Canada on Wednesday lifted its overnight target rate by 0.75 percentage point to 3.25%, following a surprise full-percentage-point increase in July. Following five increases beginning in March, the central bank’s benchmark interest rate is now 3 percentage points higher than where it started 2022, reflecting the urgency among global central banks to cool inflation triggered by supply-chain disruptions, stronger-than-expected consumer demand and the war in Ukraine.

The last time the Bank of Canada’s benchmark rate was 3% or higher was in April 2008. In a statement explaining its decision, the central bank said the benchmark rate will need to climb higher to ensure inflation decelerates toward its preferred 2% target.

The most recent consumer-price index report in Canada indicated annual inflation slowed in July to 7.6% from a four-decade high of 8.1%. The central bank said the deceleration was the result of lower gasoline prices. With the exception of gasoline, the Bank of Canada added, upward price pressures are broadening across the economy. ... The central bank said indicators measuring domestic demand—such as household consumption and business investment—were very strong based on second-quarter data.

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