Interest rates in Canada are up half a percentage point following The Bank of Canada’s announcement last week.
It further warned that rates will need to rise further to clamp down on inflation that hasn’t been seen in decades.
This is the sixth straight increase to the key interest rate, which now sits at 3.75 per cent.
The rate came below some expectations of three-quarters of a per cent increase. The U.S. Federal Reserve is expected to raise rates by that mount this week. If so, experts warn that could weaken the Canadian dollar even more than it is right now and drive up inflation as anything that is imported from the U.S. to Canada would become expensive.
The bank said in a news release that it expects interest rates to increase again to clamp down on hot inflation.
“Given elevated inflation and inflation expectations, as well as ongoing demand pressures in the economy, the governing council expects that the policy interest rate will need to rise further,” it said, noting that future rate hikes would be determined based on how it sees the economy responding to higher interest rates.
In its latest monetary policy report, the bank noted that even though inflation has eased in recent months, prices for food and services continue to rise sharply.
The country’s annual inflation rate dropped slightly in September to 6.9 per cent even as the cost of groceries continues to rise. According to Statistics Canada, grocery costs have been rising at the fastest pace since 1981 — prices were up 11.4 per cent in September compared with a year ago.
The Bank of Canada says it expects inflation to slow to 3 per cent by the end of 2023 before getting back to its 2 per cent target by the end of 2024.