OTTAWA -- The , moving its policy rate to 3.25 per cent from 2.5 per cent. Since March, the bank has increased its policy rate by 300 basis points -- the fastest pace since the mid-1990s -- in an attempt to bring inflation back to its mandated two per cent target.
The bank attributes the war in Ukraine, ongoing COVID-19 lockdowns in China and volatile commodity prices as the main drivers of elevated global inflation.
Statistics Canada reported inflation was at 7.6 per cent in July, down from its peak of 8.1 per cent in June. The drop was mainly due to a decrease in gas prices; however, other price measures for food and services remained high.
However, the bank said Canada鈥檚 core measure of inflation continue to rise, which prompts a greater risk that rising prices may become entrenched. The bank anticipates further increases to the policy rate will be needed to bring inflation lower to that two per cent target.
"They have set the stage for further rate hikes," says Kevin Page, president and CEO of the Institute of Fiscal Studies and Democracy at the University of Ottawa. "They have to probably get their policy rate to 4 per cent."
Speaking to reporters in Vancouver, where the federal cabinet ministers have gathered for a retreat, Deputy Prime Minister and Finance Minister Chrystia Freeland said the government will 鈥渃ontinue to take a balanced and careful approach as we have done all of this year.鈥�
鈥淭his is a challenging global environment economically, we are still dealing with the aftershocks of the COVID recession, we now have Putin's invasion of Ukraine causing huge challenges for the global economy, principally Europe, but that has an impact on all of us, and Canada is not immune to these challenges,鈥� she said, adding that Canada still has 鈥渞eally strong economic fundamentals.鈥�
When asked whether she thinks the continued interest rate increases by the Bank of Canada are the best approach she said: 鈥淚t's not my job to do the bank's job. And I do think it's important for Canadians to recognize that the bank has the mandate and the tools and the expertise to tackle inflation.鈥�
In July, the bank raised its interest rate by 100 basis points to 2.5 per cent, the highest rate hike since August 1998. During a press conference following the decision, Bank of Canada Governor Tiff Macklem promised a 鈥渟oft landing鈥� for the Canadian economy, while achieving the bank鈥檚 goal of bringing inflation back under control.
"We do think there is a path for a soft landing, but I will be very frank, that path is narrowing," said Macklem, during an interview with CTV National News on July 20.
Canada鈥檚 gross domestic product grew by 3.3 per cent during the second half of 2022, slightly below the bank鈥檚 projection of four per cent.
The bank anticipates growth will continue to slow in the second half of the year, bringing demand back in line with supply in the Canadian economy.
"Canada is going to experience a period of economic weakness," Jimmy Jean, Vice-President and Chief Economist at Desjardins, told 麻豆影视 Channel on Wednesday. "We think it鈥檚 going to necessitate a recession before we see inflation back to 2 per cent."
The Bank of Canada鈥檚 next rate announcement is scheduled to take place on Oct. 26.
With files from CTVNews.ca producer Rachel Aiello in Vancouver
