The Bank of Canada announced on Wednesday an interest rate hike of 0.5 points to 1%, the largest increase in 22 years, in a bid to mitigate high inflation.
The last time the central bank announced a half-point interest rate hike was in May 2000. Normally, the rate hike in the country is 0.25 points.
The institution justified this increase by the rise in inflation which, in Canada, stands at 5.7%, in particular due to the rise in energy and food prices.
The forecast by the Canadian authorities is that inflation will average 6% in the first half of 2022 and that it will remain “well above” the Bank of Canada’s objective throughout the year, which is in a range between 1% and 3%.
According to the same forecasts, inflation will reduce to 2.5% in the second half of 2023, and fall to 2% in 2024.
The central bank also explained in a statement that it will stop replacing government bonds from the massive program that was launched during the covid-19 pandemic as they mature.
The agency noted that the Canadian economy is growing strongly and heading towards a position of excess demand. Forecasts place the economy growing at 4.25% this year, 3.25% in 2024 and 2.25% in 2024.
In March, Canada’s unemployment rate fell to 5.3%, its lowest level since data collection began in 1976.
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