Bank Of Canada Expected To Announce Interest Rate Increase

The Bank of Canada is expected to announce another oversized interest rate increase this week, part of its effort to push Canadian borrowing costs rapidly higher in the hope of slowing the pace of consumer price growth.

The Bank of Canada is expected to announce another oversized interest rate increase this week, part of its effort to push Canadian borrowing costs rapidly higher in the hope of slowing the pace of consumer price growth.

The central bank is in the middle of its fastest rate hike cycle in decades. After keeping its benchmark interest rate near zero for two years, the bank’s governing council announced back-to-back rate hikes in March and April – the second being an unusually large half-percentage-point move.

Bay Street forecasters widely expect the bank to follow up with another half-point move on Wednesday. That would bring the bank’s benchmark rate up to 1.5 per cent, just a quarter point below the pre-pandemic level.

A succession of supersized moves would be extraordinary by historical standards. Before the April rate hike, the central bank had not announced a half-point increase for two decades. It typically moves in quarter-point increments.

But Canada’s central bankers seem to be feeling a sense of urgency. The annual rate of inflation hit a new 31-year high of 6.8 per cent in April – more than three times the bank’s 2-per-cent target – and forecasters expect the consumer price index to keep pushing higher in the coming months as a result of surging oil and other commodity prices.

Inflation is also broadening out to a wider range of goods and services, making it harder for Canadians to avoid.