By Ketki Saxena
Investing.com -- In a move aimed at curbing persistent inflation, the Bank of Canada raised its key policy interest rate 25 basis points to 5% on Wednesday. This marks the highest rate in 22 years, indicating a major shift in the country's monetary policy.
The decision, led by Governor Tiff Macklem, was fueled by evidence of excess demand and elevated core inflation. Both factors have proven more tenacious than initially projected, prompting the bank to revise its outlook for economic activity and inflation.
Despite the drop in CPI from its peak of 8.1 per cent last summer to 3.4 per cent in May, the decline was largely driven by lower energy prices, the Bank said. Core inflation meanwhile, has proven more persistent than expected, the statement noted.
In its statement, the Bank also stated that Canada’s economy has proven stronger than expected and the labour market remains tight with wage growth at about 4 to 5 per cent.
As higher interest rates continue to permeate the economy, the bank anticipates economic growth to moderate, averaging around 1% through the second half of this year and the first half of next year