The cost of borrowing continues to be more expensive for Canadians.
Canada’s central bank raised its key interest rate 25 basis points to 5% on Wednesday – the tenth hike since March 2022 and the highest it’s been since 2001.
The Bank of Canada (BoC) says the rate hike was necessary in order to reduce core inflation, which continues to be higher than what the central bank had expected. Inflation was 3.4% in May, above the BoC target of 1-3%.
“The stubbornness of core inflation in Canada suggests that inflation may be more persistent than originally thought,” the BoC’s Monetary Police Report states.
Officials forecast inflation will hover around 3% for the next year before gradually declining to its 2% target in mid-2025.
“The next stage in the decline of inflation towards target is expected to take longer and is more uncertain. This is partly due to elevated services inflation, which can adjust sluggishly, and uncertainty about expected inflation,” the report states.
There was no mention of an interest rate pause in the BoC’s monetary policy report, suggesting that more hikes are possible in the future.
The BoC’s latest hike comes as financial optimism among Canadians continues to decline.
More than half of Canadian consumers don’t feel like their wages can keep up with inflation and over a third are saving money in anticipation of a recession, says a report from TransUnion.
The credit reporting agency’s Consumer Pulse Q2 2023 revealed that 55% of consumers felt like their incomes couldn’t withstand the inflation crisis.
Forty-two percent of consumers who were optimistic about their finances last quarter, of whom 53% were Gen Z and 48% were millennials, reported the most confidence.
