The Bank of Canada (BoC) on Wednesday hiked its key overnight rate by a quarter of a percentage point to a 22-year high of 5.0%, saying it feared that efforts to return inflation to its 2% target could stall amid excess consumer spending.
The move to increase borrowing costs by 25 basis points for the second time in as many months was expected by analysts and markets. After a five-month pause, the BoC raised its overnight rate in June saying monetary policy was not sufficiently restrictive.
Canadian money markets increased bets for another rate increase after the move, seeing an almost 40% probability of another hike at the next policy announcement in September. Despite nine previous rate increases totaling 450 basis points since March of last year, the economy regained momentum in May, likely growing 0.4% on the month, after stalling in April.
"The rebalancing of supply and demand is now expected to happen in early 2024," the BoC said it its report containing new forecasts also released on Wednesday.
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