Bank of Canada raises interest rate to 3.25%

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The Bank of Canada raises its key rate to 3.25%

The institution wants to slow spending and household debt which, paradoxically, have to pay much more for their consumer goods.

This is the fifth consecutive rate hike Director of the Bank of Canada this year.

Continuing its efforts to try to curb the inflationary outbreak that is sweeping the country, the Bank of Canada is raising its key rate by 0.75 percentage points, to 3.25%.

This is the fifth straight increase in the Bank's key interest rate, which has been trying for months now to bring annual inflation back into the 1% to 3%. A threshold that was crossed in April 2021.

Inflation, which has since hit highs not seen in nearly 40 years, stood at 7.6% in July, down slightly from the 8 .1% of June.

Despite this decline attributed to lower gas prices, there is still a long way to go, warns the Bank of Canada .

Excluding gasoline, inflation has picked up and the data indicates that price pressures have become more widespread, particularly on the services side. The Bank's core inflation measures continued to rise to between 5 and 5.5% in July, the institution finds.

Surveys indicate that near-term inflation expectations remain high. And the longer they remain so, the more strong inflation is likely to take root.

For all these reasons, the Bank's Governing Board believes that the key rate will have to increase further.

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“The effects of COVID-19 outbreaks, ongoing supply disruptions and the war in Ukraine continue to dampen growth and drive up prices. »

— Excerpt from the Bank of Canada press release

Taking this new hike into account, the key rate has risen by 3 percentage points since the start of the year. This is a major brake on calming the overheated economy by increasing the cost of credit.

The Bank of Canada has raised its key rate again. This is the fifth time since March. It now stands at 3.25%, a 14-year high. By trying to rein in inflation, the Bank is adding another layer of pressure on the finances of worried Canadians. Reactions with Yasmine Mehdi.

For consumers, this new increase in the key rate will lead to higher interest rates and therefore higher mortgage rates. Just like car loans, credit cards or lines of credit.

According to Equifax Canada, consumer debt among Canadians increased by 8.2% in the second quarter of 2022 compared to the same quarter of last year.

A rapid rise in interest rates is also not good news for companies, which must also deal with borrowing and high indebtedness, while the price of services and raw materials remains high.

The Bank of Canada is raising its key rate by 75 basis points, to 3.25%, in an attempt to curb the country's persistent surge in inflation.

Regarding the Canadian economy, it remains in a situation of excess demand and labor markets remain tight, notes the central bank.

In the second quarter of 2022, gross domestic product grew by 3.3%.

Although this figure is somewhat lower than the Bank had projected, domestic demand indicators have been very strong: consumption has increased by around 9.5 % and business investment, nearly 12%, writes the management of the Bank of Canada.

Despite demand that is slow to react to successive increases in its key rate, the he institution nevertheless anticipates a slowdown in the economy in the second half of the year as global demand weakens and the tightening of monetary policy here in Canada begins to bring demand back to a level more comparable to that of the offer.

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