Bank of Canada: Supersize Me (Again)!

As expected, the Bank of Canada (BoC) raised its benchmark rate yesterday - this time by 75 basis points, to 3.25%. This puts the rate into what the Bank calls "restrictive" territory; that is, it's above the neutral rate of 3% and is designed to act as a brake on economic growth. The ultimate expectation is that this policy, combined with continued quantitative tightening, will reduce the inflation rate. Inflation fell in July, thanks mainly to a drop in gasoline prices, but inflation excluding gasoline increased. The BoC announcement stated "Given the outlook for inflation, the Governing Council still judges that the policy interest rate will need to rise further," with the actual amount of future increases dependent on how well current economic policy works in returning inflation to the 2% target. The Bank expects that the economy will continue to cool in the last half of the year (Q2 GDP growth was weaker than projected, economic activity in May and June was relatively flat and the BoC's forecast for July calls for a 0.1% decline). The text of the Bank's announcement is available here.