The Bank of Canada says its decision to raise its benchmark interest rate to 0.75 per cent from 0.5 per cent will not be enough to counteract rising inflation.
The decision marks the first rate hike since 2009 and comes after recent data showed Canada’s economy is improving and inflation has risen to an eight-year high of 2.4 per cent.
Economists say the Bank of Canada’s cautious outlook on inflation and the slowing growth in Canada’s economy is leading to a wait-and-see attitude by other central banks. That means Bank of Canada Governor Stephen Poloz may have to move to a more aggressive stance if Canada’s economy or inflation starts to weaken.
Poloz said in a speech to business leaders in Toronto on Friday that, “Some of you may have noticed that the pace of economic growth has slowed in recent months, and that recent measures of inflation have been higher than you would have expected them to be.”
“In fact, the data show that the growth of real GDP – which is Canada’s overall economic performance – has actually declined in recent months,” Poloz said.
“In this environment, we believe it would be prudent to wait a little while before proceeding further with another interest rate increase.”
Canada has one of the fastest-growing economies in the world, helped by a surge in the price of oil in recent years. However, the Bank of Canada has been repeatedly called out for not doing enough to protect the economy.
On Friday, Poloz noted that, “We have a dynamic economy with strong momentum, and it’s our job to help that momentum build and continue to contribute to the country’s long-term prosperity.
“It is clear, however, that uncertainty in the global economic environment has intensified, and the resulting financial market volatility could have a flow-on impact on the Canadian economy.”
Poloz called on business leaders to step up investment in Canada’s economy, and to make sure the government makes its fiscal policy commitments in a timely and transparent manner.
“We will continue to watch closely developments in the global economy, and we will announce our next interest rate decision in January,” he said.
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