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Essentials of Monetary Policy

The Bank of Canada Sees Inflation Higher for Longer

July 12, 2023
Randall Bartlett
Senior Director of Canadian Economics

As was widely expected, the Bank of Canada hiked the overnight policy rate by 25 basis points to 5.00% today. This is the second hike since January, following the one in June. The press statement made sure there was no confusion about the rationale for today’s rate hike. Indeed, the Bank reiterated its concern that “underlying price pressures appear to be more persistent than anticipated.” Consequently, the Bank revised up its forecast for total CPI inflation. At the same time, the Bank revised up its outlook from 2023 real GDP growth, to 1.8% from 1.4% in April. But while 2023 was revised higher, 2024 and 2025 real GDP growth were revised lower by a tick to 1.2% and 2.4%, respectively.

The Bank of Canada’s analysis that accompanied today’s rate hike leaves little doubt that it was justified. Looking to the next meeting in September, the door isn’t shut to another rate hike. That said, we continue to believe that this will be the final rate hike for this cycle.

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