Canada Surprises with 1%P Interest Rate Hike... Largest Increase Since 1998

[Asia Economy New York=Special Correspondent Joselgina] The Bank of Canada (BOC) has implemented a so-called 'jumbo step' by raising the benchmark interest rate by 1.0 percentage point at once. This is the largest increase since 1998.

On the 13th (local time), the Bank of Canada announced at its monetary policy meeting that it would raise the benchmark interest rate from the existing 1.5% to 2.5%, an increase of 1 percentage point, to curb inflation.

This is not only double the increase last month (0.5 percentage points) but also far exceeds market expectations. This is the first time since August 1998, when the Bank of Canada raised rates by 1 percentage point in response to the Asian financial crisis, that it has taken a jumbo step. With this increase, Canada's benchmark interest rate has reached its highest level since 2008.

The Bank of Canada explained the background by stating that inflation has remained persistently high and there are concerns it will become entrenched, necessitating a preemptive rate hike. Previously, Canada's consumer price index for May recorded 7.7%, the highest level since 1983, leading to expectations of continued high-intensity tightening.

However, the size of this rate hike was a surprise decision that far exceeded the 0.75 percentage points anticipated by the market. According to a Wall Street Journal survey, 11 out of 12 economists expected a 0.75 percentage point increase. The remaining one expected a 0.5 percentage point increase.

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