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In a series of aggressive moves since March 2022, the Bank of Canada has been consistently raising interest rates from a mere 0.25% to five percent. The escalation in rates was primarily a response to mounting inflation, which has been fueled by economic factors such as the Russia-Ukraine conflict and increased oil and commodity prices. To counteract these pressures, the bank adopted quantitative tightening measures and raised the overnight lending rate on multiple occasions.
By June 2022, Canadian inflation had hit a high of 6.8%, prompting the bank to push the overnight lending rate to 1.50%. In July, a significant rate hike brought the rate up to 2.50%. Despite these actions and a near-historic low unemployment rate, inflation continued to be stubbornly high, reaching 4.25% by December – a level not seen since January 2008.
The start of 2023 witnessed a pause in rate hikes due to stalled economic growth. However, as inflation picked up again and economic growth showed signs of resurgence mid-year, the bank resumed hiking rates. Recent signs of weaker economic growth, receding housing activity, and easing excess demand suggest that the cycle of rate hikes may be nearing its end as inflation drops to 3.8%.
Despite this drop in inflation, recent developments indicate a reacceleration of inflation to 3.3%. Coupled with the ongoing impact of previous rate hikes, this could imply that further increases may be necessary if conditions warrant such an action.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
Source: Investing.com
