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The Central Bank of Canada raises the reference interest rate by one point | International

Bank Street, opposite the Central Bank of Canada, in Ottawa.
Bank Street, opposite the Central Bank of Canada, in Ottawa.David Kawai (Bloomberg)

The Central Bank of Canada announced this Wednesday that the reference interest rate goes from 1.5% to 2.5%, a decision that exceeds the projections of most economists in the country, who had indicated that it would arrive at 2.25%. This is the steepest increase since August 1998. The measure seeks to curb more vigorously the high inflation that hits Canadians. In May it reached 7.7%, a figure not seen since the beginning of 1983.

The regulatory body indicated that it is a decision that marks “a tougher approach than expected” to try to deal with a “high and spreading” inflationary situation due to excess demand within the economy. Its authorities cite factors such as the war in Ukraine and disruptions in supply chains, but also internal pressures on the prices of many products.

“Demand needs to slow down for supply to stabilize and price pressure to ease,” said Tiff Macklem, Governor of the Central Bank of Canada. Macklem also said that various central banks are tightening their monetary policies to fight inflation. In mid-June, the US Federal Reserve raised its target interest rate by three quarters of a percentage point.

The rate in Canada had dropped at the beginning of 2020 to 0.25% to give the economy a boost in hard times of the pandemic. However, it has increased four times so far in 2022 due to the wave of inflation. The Central Bank of Canada indicated on Wednesday that inflation “is likely to remain around 8% in the coming months.”

Regarding the increase of the regulatory body, the Canadian Prime Minister, Justin Trudeau, declared in the framework of an event in Kingston (Ontario) that “families are suffering” due to inflation; He said that his government will continue to provide support through various investments and promoting the creation of employment sources. The Conservative Party -the official opposition in the Lower House- expressed in a statement that Canadians are in difficult economic times “after seven long years of uncontrolled spending by Justin Trudeau”, thus forcing -according to the Tories– the Central Bank to make the biggest increase in the rate since 1998.

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