Bank of Canada Raises Interest Rate to 2.5% in First Hike Since July 2023
Bank of Canada Governor Tiff Macklem defended the central bank's decision to raise its policy interest rate by 25 basis points to 2.5%, citing the need to prevent energy-driven inflation from spreading across the economy.
The Bank of Canada has raised its policy interest rate by 25 basis points, bringing it to 2.5 per cent. This marks the first interest rate increase since July 2023.
Governor Tiff Macklem appeared before the House of Commons Standing Committee on Finance on Tuesday to discuss the decision. He stated that the rate hike was intended to reduce the risk of elevated energy prices spilling over into generalized inflation. Macklem cited the war in the Middle East as a driver for surging global oil prices and supply chain shocks.
The higher rate means Canadians and businesses will pay more for mortgages and loans. Higher energy prices are already hitting consumers at the gas pump and raising business costs, with cost pass-through to consumers expected to increase over the next year.
Senior Deputy Governor Carolyn Rogers told the committee that keeping interest rates low would not help investment if it resulted in increasing inflation.
Macklem also addressed questions regarding federal fiscal policy. He declined to directly answer questions about the government's affordability efforts but noted he only comments on fiscal policy when spending is unsustainable or works against inflation control. The federal government plans to release its next budget on Nov. 5, which is expected to include tax incentives for small and medium-sized businesses.
Conservative Leader Pierre Poilievre has urged the government to slash spending ahead of Thursday’s budget to help control costs.