Bank of Canada Raises Interest Rates to Highest Level in 15 Years

The Bank of Canada on Wednesday lifted its benchmark interest rate by 50 basis points, the highest level in almost 15 years. The central bank has raised rates at a record pace of 400 basis points in nine months to 4.25% to fight inflation. Explaining the latest increase, the bank pointed to strong GDP growth and tight labor market conditions as the driving forces behind it.

Most economists had projected a 25-basis-point increase and were surprised that the latest announcement confirmed an increase double the size of what the market was expecting. Analysts say the increase cycle is likely at its highest point, with the bank likely now to give high interest rates time to slow economic growth and cool inflation.

Canada’s GDP grew in the third quarter at an annualized rate of 2.9%. The central bank attributed this to lingering demand in the economy. It expected growth to stall through the middle of next year.

Inflation was 6.9% in October, a figure considered too high by the Bank of Canada. However, three-month rates of change in core inflation have declined and indicate that price pressures may be losing steam. The Canadian dollar showed a spurt of growth on the news, gaining 0.3% against the US dollar to trade at 1.3614, after earlier touching a one-month low at 1.3699.