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Key Interest Rate Rises To 4.25%

By Brad Perry Dec 7, 2022 | 1:04 PM

The Bank of Canada bumped up its key interest rate Wednesday to 4.25 per cent.

That is an increase of 50 basis points and marks the seventh rate hike of 2022.

In a news release, the bank said GDP growth in the third quarter was “stronger than expected” and the economy continued to operate in “excess demand.”

“While commodity exports have been strong, there is growing evidence that tighter monetary policy is restraining domestic demand: consumption moderated in the third quarter, and housing market activity continues to decline,” said the release.

The bank also noted that CPI inflation remained at 6.9 per cent in October, well above its target of two per cent.

While that number is down slightly from record highs we saw earlier in the year, the bank said it is still too high and short-term inflation expectations remain elevated.

“The longer that consumers and businesses expect inflation to be above the target, the greater the risk that elevated inflation becomes entrenched,” said the bank.

Officials noted that three-month rates of change in core inflation have come down, which they said is an early indicator that price pressures may be losing momentum.

“Looking ahead, Governing Council will be considering whether the policy interest rate needs to rise further to bring supply and demand back into balance and return inflation to target,” said the release.


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