Bank of Canada raises key interest rate by 0.75 per cent

The cost to borrow money in Canada is getting more expensive.

The Bank of Canada raised its benchmark lending rate by three-quarters of a percentage point to 3.25 per cent Wednesday morning.

The move — the fifth consecutive increase in the interest rate this year — was again prompted by inflation rates in the country.

“In Canada, CPI inflation eased in July to 7.6 per cent from 8.1 per cent because of a drop in gasoline prices,” the Bank of Canada said in a media release. “However, inflation excluding gasoline increased and data indicate a further broadening of price pressures, particularly in services.”

The bank noted that short-term inflation is expected to remain high and suggested that the longer that trend continues, the more likely it is that “elevated inflation” will become entrenched.

“Given the outlook for inflation, the Governing Council still judges that the policy interest rate will need to rise further,” the release said. “Quantitative tightening is complementing increases in the policy rate. As the effects of tighter monetary policy work through the economy, we will be assessing how much higher interest rates need to go to return inflation to target.”

The Bank of Canada’s target for inflation is two per cent.

The release said Canada’s GDP grew by 3.3 per cent in the second quarter, which was less than the bank had expected. However, it noted that “indicators of domestic demand were very strong,” with consumption growing by about 9.5 per cent and business investment growing by nearly 12 per cent.

Higher mortgage rates also caused the housing market to cool after what the bank called “unsustainable growth” during the early stages of the COVID-19 pandemic.

“The Bank continues to expect the economy to moderate in the second half of this year, as global demand weakens and tighter monetary policy here in Canada begins to bring demand more in line with supply,” the release said.