By Ketki Saxena
Investing.com - Following the Bank of Canada's decision to raise interest rates to 4.75%, Finance Minister Chrystia Freeland sought to reassure anxious Canadians that the economy remains on track for stability and growth.
"There are a lot of Canadians who are anxious right now and who will be concerned when they see this step taken by the Bank of Canada," Freeland acknowledged during a press conference held in Ottawa.
However, Freeland remained optimistic. "We are coming to the end of this difficult path out of the Covid economy"
"The destination is stable, low inflation and steady, strong growth. And that is the direction that we are heading."
She emphasized that factors such as a strong labor market and "the core strength and resilience of the Canadian economy" ensure ongoing financial security for citizens despite increased mortgage payments and still high inflation that are eroding into the purchasing power of Canadian consumers.
The overnight lending rate was raised by Governor Tiff Macklem and his team on Wednesday, increasing it by 25 basis points to reach 4.75%—the highest level since 2001. This move came after the Canadian central bank held rates consistent for five months and came as somewhat of a surprise, with the majority of analysts expecting the Central Bank to continue to hold rates.
Evidence pointing toward an overheating economy prompted this shift, including stronger-than-expected output growth in Q1, rising inflation rates, and renewed housing-market activity.