Canada's central bank hikes interest rates again, as U.S. Fed looms
Bank of Canada raises key interest rate by 0.25% to 4.5%
The Bank of Canada raised its key interest rate by a quarter of a percentage point to 4.5% on Wednesday, as widely expected, in a bid to tame stubbornly high inflation. The decision was made at the central bank's first policy meeting of the year and comes after the U.S. Federal Reserve raised its benchmark rate by the same amount on Tuesday.
Bank of Canada tries to balance inflation and economy
The Bank of Canada has been raising interest rates aggressively since March 2022 in an effort to cool inflation, which hit a four-decade high of 8.1% last summer. The central bank's target for inflation is 2%.
The latest rate hike is expected to put further upward pressure on borrowing costs for businesses and consumers, including variable-rate mortgages and lines of credit. However, the Bank of Canada said it is trying to balance its inflation-fighting efforts with the need to support economic growth.
U.S. Federal Reserve also raises rates
The Bank of Canada's decision to raise rates follows a similar move by the U.S. Federal Reserve on Tuesday. The Fed raised its key interest rate by a quarter of a percentage point to a range of 4.5% to 4.75%.
The coordinated action by the two central banks suggests that they are both concerned about the persistence of inflation. The Fed has said that it expects to continue raising rates this year, although at a slower pace than in 2022.
What does this mean for Canada?
The Bank of Canada's rate hike will likely lead to higher borrowing costs for Canadians. This could make it more expensive to buy a home, finance a car, or take out a business loan.
The central bank's decision is also likely to put downward pressure on the value of the Canadian dollar. A weaker loonie could make it more expensive for Canadians to buy goods and services from abroad.
The Bank of Canada's next policy meeting is scheduled for March 8. The central bank is expected to provide more guidance on its future rate path at that time.
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