The Bank of Canada raises the key rate by a quarter of a point. The target for the overnight rate is reduced from 0.25% to 0.5%.
The objective is to control inflation, which now stands at a record level of 5.1%.
The Bank had announced its colors in January, warning that it might no longer maintain the key rate at its floor level without moving dangerously far from its target of 2% inflation.
A Storm Named Putin
But since the central bank’s last outing, another tile has hit the global economy as it has yet to fully recover from the pandemic: Russia’s invasion of Ukraine. The Bank now fears that inflation is accelerating even more than expected.
“Price increases have become widespread and measures of core inflation have all increased. Poor harvests and higher transportation costs have pushed up food prices. The invasion of Ukraine is putting additional upward pressure on energy and food commodity prices.
The Russian attack in Europe automatically shook international markets, pushing up the price of crude oil and with it the price of all consumer goods. Supply chains, still disrupted by the pandemic, must now absorb another shock. The economic sanctions imposed on Moscow have accentuated the phenomenon.
… will become a dangerous hurricane
Yesterday, the Minister of Finance and Deputy Prime Minister Chrystia Freeland warned that, to stop Vladimir Putin, even more severe sanctions are regarding to be announced and are likely to affect the Canadian economy.
Faced with this international hurricane, the Bank of Canada is signaling that it expects “short-term inflation to exceed the January projection”. He will have to hold the helm of the Canadian economy with an iron fist to face headwinds.
The institution is already warning that other key rate hikes will follow. The next target date for the overnight rate is April 13.