The Bank of Canada (BoC) today took another aggressive step in its stance by raising its overnight interest rate by 50 basis points for the second time in a row and warned that stronger measures are needed to tackle inflation.
The central bank raised the overnight rate to 1.5% in a recent policy decision and at the same time issued a hawkish statement stressing concerns over rising inflationary pressures at high levels.
While a 50 basis point increase is expected but statements by policymakers led by Governor Tiff Macklem that they are considering tightening measures faster than they have proposed have sparked speculation. The market expects another half -point rise at the July 13 meeting and the BoC is seen to stop around 3%.
The central bank is “prepared to act more decisively if necessary to meet its commitment in achieving its 2%inflation target,” the Bank of Canada said in a statement prepared.
“The risk of rising inflation has taken root in the economy”, the policymakers said, adding that they would use their tools to return inflation to target.
The big consecutive rise is unprecedented since banks began adjusting monetary policy on a fixed decision date in 2000. Policymakers acknowledge that inflation is rising faster than their April forecasts and “is likely to move higher in the near term before starting to subside. ”
Finally, the latest ‘hawkish’ comments could spark a debate over whether the central bank is about to likely need to raise rates outside the neutral range and actively slow economic growth.
