Bank of Canada raises key interest rate to 0.5%

Bank of Canada has hiked its key interest rate to 0.5 per cent, the first step of a series of signalled increases amid economic recovery from the COVID-19 pandemic.The overnight rate target will rise 25 basis points, the central bank announced Wednesday, up from the floor of 0.25 per cent it held for much of the pandemic.In a statement accompanying the decision, the Bank of Canada said the war in Ukraine is “a major new source of uncertainty” that is driving prices higher on oil and other commodities.“This will add to inflation around the world, and negative impacts on confidence and new supply disruptions could weigh on global growth.

Financial market volatility has increased. The situation remains fluid and we are following events closely,” the bank wrote.

Experts say Ukraine war may slow, but won’t stop, Bank of Canada interest rate hikes Wednesday’s hike marks the first time the Bank of Canada has increased rates since October 2018.The higher rate is expected to prompt the country’s big banks to raise their prime lending rates, a move that will increase the cost of loans such as variable-rate mortgages that are linked to the benchmark.The bank has signalled it would use higher interest rates to tamp down on surging inflation, which hit a more than 30-year high of 5.1 per cent in January — well above policymakers’ stated target of two per cent.Though the central bank said it intends to use its key interest rate to keep expectations for inflation “well-anchored,” it cautioned that global pressures will continue to push prices higher in the months to come.“All told, inflation is now expected to be higher in the near term than projected in January,” it wrote.