On Wednesday, the Bank of Canada raised the overnight interest rate by fifty points to 3.75 percent, marking the sixth consecutive hike this year.
In a press release, the BoC explained that the Canadian economy "continues to operate in excess demand," with companies struggling to keep up with supply needs. This, they argued, has led to rising inflation.
They went on to claim that the effects of recent rate increases "are becoming evident in interest-sensitive areas of the economy" such as housing, and personal and commercial spending.
"Economic growth is expected to stall through the end of this year and the first half of next year as the effects of higher interest rates spread through the economy," the BoC continued, projecting that GDP growth will slow from 3.75 percent in 2022 to nearly 1 percent next year.
The BoC also warned that because near-term inflation expectations remain high, there is an increased risk that "elevated inflation becomes entrenched." They projected that CPI inflation will fall to around 3 percent by the end of 2023, and reach the 2 percent target by the end of 2024.
"We also expect our policy rate will need to increase further," BoC governor Tiff Macklem said in a press conference on Wednesday, adding that, "how much further will depend on how monetary policy is working to slow demand, how supply challenges are resolving, and how inflation and inflation expectations are responding to this tightening cycle."
Macklem said the BoC expects growth to stall over the next few quarters, but noted that "once we get through this slowdown, growth will pick up, our economy will grow solidly, and the benefits of low and predictable inflation will be restored."
"The message to Canadians," Macklem continued, "is look, we know inflation is too high, and we know it's hitting you everywhere … shelter, rent, groceries." He pointed out that two-thirds of the things the average Canadian buys have gotten more expensive, and that by raising interest rates and thereby slowing demand, prices will go down.
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