Bank of Canada Increases Interest Rates as Expected

The Bank of Canada (BoC) today announced it was increasing its benchmark interest rate to 0.50%. This is a quarter-point hike from the "effective lower bound" rate of 0.25% that has been in effect since the onset of the pandemic. In increasing its rate, the BoC cited the current relatively high inflation rate (5.1% in January - well above the Bank's 2% target), strong economic growth, quick recovery from the Omicron variant of COVID-19, and the effect tht Russia's invasion of the Ukraine is having on food and energy prices. Tha Bank noted "As the economy continues to expand and inflation pressures remain elevated, the Governing Council expects interest rates will need to rise further," and also talks about quantative tightening (decreasing its portfolio of Government of Canada bonds). While acknowledging that there continues to be concern about the emergence of new strains of COVID-19, the tone of today's announcement was generally hawkish, and we can expect additional increases this year - perhaps as soon as April. You can read the announcement here.