The Bank of Canada raised its benchmark interest rate to 4.75 per cent, restarting its monetary policy tightening campaign in response to stubborn inflation and surprising resilience in the Canadian economy.
“Based on the accumulation of evidence, Governing Council decided to increase the policy interest rate, reflecting our view that monetary policy was not sufficiently restrictive to bring supply and demand back into balance and return inflation sustainably to the 2-per-cent target,” the bank said in its rate announcement.
“With three-month measures of core inflation running in the 3.5 to 4 per cent range for several months and excess demand persisting, concerns have increased that CPI inflation could get stuck materially above the 2-per-cent target,” the bank said. This is a problem for the Bank of Canada, which is deliberately trying to slow economic activity to reduce upward pressure on consumer prices. The bank’s goal is stabilizing the purchasing power of the Canadian dollar. And over the past year-and-a-half it’s shown considerable willingness to dish out pain to households and businesses to achieve that end.
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