Canada's central bank raises interest rates by a full percentage point

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Central Bank of Canada in Ottawa

Photo: GEOFF ROBINS / AFP

With the strongest rate hike in almost 24 years, Canada's central bank is bracing itself against skyrocketing inflation and an overheating economy.

The monetary authorities raised the key monetary policy rate on Wednesday by a full percentage point to 2.50 percent.

Canada's central bank marked the largest interest rate hike since August 1998, when it also hiked the key rate by a full percentage point to support the Canadian dollar.

The monetary watchdogs in Ottawa last tightened the interest rate reins by 0.50 percentage points in April and June.

The Bank of Canada is currently facing skyrocketing inflation.

Prices had recently risen at the fastest pace in 40 years.

The price surge is expected to continue for a while.

Inflation climbed to 7.7 percent in May from 6.8 percent in April.

After the US Federal Reserve had raised interest rates by 0.75 percentage points to the new range of 1.50 to 1.75 at its June meeting, it was generally expected that Canada's central bank would also decide on a sharp rate hike.

The economy is clearly showing excess demand and inflation is high and spreading, Canada's monetary authorities said.

Businesses and consumers also expect high inflation to last longer.

Therefore, it was decided to prefer the path to higher interest rates, the central bank said.

The Bank of Canada also warned that it now expects inflation to average around 8 percent over the next few months.

dab/Reuters