Bank of Canada increases key interest rate to 1.5%

The Bank of Canada has raised its key interest rate by half a percentage point for the second time in two months.

The hike announced Wednesday pushed the rate to 1.5 per cent, just a quarter of a point below the level it was at before the COVID-19 pandemic — and the bank said the rate will continue to increase due to rising consumer prices.

“Inflation globally and in Canada continues to rise, largely driven by higher prices for energy and food,” the bank said in a statement announcing the rate hike.

“In Canada, CPI inflation reached 6.8 per cent for the month of April — well above the Bank’s forecast — and will likely move even higher in the near term before beginning to ease.”

The Bank of Canada said the war in Ukraine, COVID restrictions around the world and low unemployment rates in Canada will likely push inflation higher.

Even so, the bank said Canada’s economy is strong and “clearly operating in excess demand.”

“National accounts data for the first quarter of 2022 showed GDP growth of 3.1 per cent, in line with the Bank’s April Monetary Policy Report (MPR) projection,” the bank said in its statement.

“Job vacancies are elevated, companies are reporting widespread labour shortages, and wage growth has been picking up and broadening across sectors.”

— With files from The Canadian Press