BOC Summary of Governing Council Deliberations

Key Points

• The Bank of Canada (BOC) raised its policy interest rate by 50 basis points to 4.25%.
• The Bank cited persistent inflation and elevated core inflation as reasons for the increase.
• The BOC expects inflation to remain above its 2% target for the next few years.

In-Depth Analysis

On Wednesday, January 25, 2023, the Bank of Canada (BOC) raised its policy interest rate by 50 basis points to 4.25%. This marks the eighth consecutive rate hike by the BOC since March 2022.

In its statement, the BOC cited persistent inflation and elevated core inflation as reasons for the increase. The BOC noted that CPI inflation in December was 6.3%, down from 6.8% in November. However, core inflation, which excludes volatile food and energy prices, remained elevated at 5.3%, well above the BOC's target of 2%.

The BOC also noted that the Canadian economy continues to grow, albeit at a slower pace. The Bank expects GDP growth to moderate to 1.5% in 2023, down from 3.3% in 2022. The BOC also revised its inflation forecast, now expecting inflation to remain above its 2% target until 2025.

The BOC's decision to raise interest rates is in line with the actions of other central banks around the world. The Federal Reserve, the European Central Bank, and the Bank of England have all raised interest rates in recent months in an effort to curb inflation.

The BOC's rate hikes are likely to have a number of impacts on the Canadian economy. Higher interest rates make it more expensive for businesses to borrow money, which can lead to slower economic growth. Higher interest rates also make it more expensive for consumers to borrow money, which can reduce spending.

The BOC's rate hikes are likely to put downward pressure on inflation. However, it is important to note that the full effects of the rate hikes may not be felt for several months.