Economic update: Bank of Canada June rate increase
While Canadians saw a brief pause in increases after over a year of rising interest rates, the Bank of Canada announced another hike in June. Our colleagues at NEI Investments released an update on the recent increase and the state of the Canadian economy.
Bank of Canada hikes rate by 25 basis points
On June 7, the Bank of Canada (the BoC) announced a 25bps interest rate increase, the first increase since January. This lifts the benchmark interest rate to 4.75 per cent, a value not seen since May 2001. This announcement surprised markets, as central bank officials announced a pause of the tightening cycle in January and subsequently kept interest rates steady over the past two rate announcements. However, the BoC pointed to stubbornly high inflation as a global phenomenon and noted they along other global central banks may have to continue raising rates further to restore price stability.
Recent economic data shows that Canada’s economy is still running hotter than expected, as Q1 GDP grew at 3.1%, unemployment remains low and housing prices have started to climb again. The latest consumer price index data showed inflation at 4.4%, with many economists expecting to see inflation continue to be in the 3-4% range in the months ahead. The Bank of Canada is concerned inflation could get stuck above the 2% target without further economic tightening.
The BoC statement included, "Based on the accumulation of evidence, Governing Council decided to increase the policy interest rate, reflecting our view that monetary policy was not sufficiently restrictive to bring supply and demand back into balance and return inflation sustainably to the 2% target." While the statement reiterated the need to make further decisions based on an assessment of core inflation and CPI, this likely indicates that there will be further rate increases.
Inflation and interest continue to be a key issue in 2023. One of our most important roles in service to investors is to help them see past the headlines and view current events in terms of their own established financial goals.
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Disclaimer:
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