Citing Threat of Inflation, Bank of Canada Raises Its Benchmark Interest Rate to 4.75%

The Bank of Canada on Wednesday announced it was raising its benchmark interest rate to 4.75%, CBC reported (6-7-23). It is the first time that Canada’s central bank has raised its trend-setting interest rate since January, when the bank indicated that it would conditionally pause its aggressive campaign of rate hikes to wait and see if they had done enough to bring down inflation.

Since the start of the January pause, data has shown that the Canadian economy continues to be unexpectedly resilient, as it has grown more than anticipated. After declining for nine months in a row, the inflation rate unexpectedly ticked higher in May.

The central bank’s latest move to increase its target for the overnight rate from 4.50% to 4.75% takes the bank’s benchmark to its highest level since 2001.

Economists noted that the central bank’s move is going to make life more expensive for variable rate mortgage holders, many of whom have seen their payments skyrocket this year, according to CBC. The rate hikes previously announced have added more than $1,000 (CAD) to the monthly payment on a $500,000 mortgage—and that is prior to Wednesday’s announcement.

Within hours of the announcement, Canada’s largest banks all moved to match the central bank’s hike, raising their prime lending rates to 6.95%.