The Bank of Canada today raised its key interest rate by a quarter percentage point and said it expects this to be the last rate hike of the cycle.
The rate hike marks the eighth consecutive increase since March as the central bank battles the highest inflation in decades.
Its key interest rate now stands at 4.5%, the highest since 2007. This was justified by Bank of Canada Governor Tiff Macklem:
While lower gasoline prices are welcome the cost of essential goods such as food and rent have continued to rise rapidly, core inflation has also stagnated around 5%. Based on these values the board has concluded that another modest increase in our interest rate policy is necessary. We know that it is necessary to allow time for higher interest rates to work in the economy to slow demand and reduce inflation and given the speed and magnitude of the increases we have taken over the last year, we have not yet seen the full effects of these measures. but we can see that the interest rate increases are working. Higher rates are reducing household spending and inflation is coming down.
Wednesday's rate hike comes after months of slowing inflation. After peaking at 8.1% in the summer, Canada's annual inflation rate has steadily declined and reached 6.3% in December.
The Bank of Canada also released its latest monetary policy report on Wednesday, providing updated projections for the economy and inflation.
According to the report, the central bank expects inflation to slow faster than it had previously anticipated. It forecasts that the annual inflation rate will fall to three percent by mid-2023 and to its target of two percent in 2024.