The Bank of Canada hiked interest rates by a full percentage point, a surprise move that supercharges efforts to withdraw stimulus amid fears four-decade-high inflation is becoming entrenched.
Governor Tiff Macklem raised the central bank’s policy rate to 2.5 per cent in a decision announced Wednesday in Ottawa that warned of more hikes to come. The 100-basis-point move is the largest increase since 1998. Markets and economists were anticipating 75 basis points.
The unexpected monetary jolt illustrates the extent to which officials are spooked by soaring inflation, electing to take decisive action even at the risk of causing severe economic pain. They cited worries that persistent inflation creates a vicious cycle of wage gains and price increases that makes it difficult to bring inflation under control.
“With the economy clearly in excess demand, inflation high and broadening, and more businesses and consumers expecting high inflation to persist for longer, the Governing Council decided to front-load the path to higher interest rates,” officials said in the policy statement.
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