Bank of Canada hikes key interest rate to 0.5 per cent

The Bank of Canada has increased its key interest rate for the first time since 2018.

The national bank raised its rate to 0.5 per cent on Wednesday, up from 0.25 per cent. It had been at that level since March of 2020, when the Bank of Canada slashed the interest rate with the goal of helping the economy face the impact of the COVID-19 pandemic.

Since that point, Canada’s economy has rebounded — but inflation now has reached its highest point in three decades. The annual inflation rate in January was 5.1 per cent.

The Bank of Canada said Wednesday it expects inflation to be higher in the short term than it had previously thought.

The higher key interest rate likely will prompt the country’s big banks to raise their prime lending rates, which in turn would increase the cost of loans such as variable-rate mortgages.

— With files from The Canadian Press