Canada Raises Base Interest Rate by 0.5%P... BOC Governor Says "End of Tightening Near"

Raised from 3.25% to 2.75%... Market expects a 4% increase

Tiff Macklem, Governor of the Bank of Canada (BOC)
Photo by Reuters Yonhap News

[Asia Economy Reporter Byunghee Park] The Bank of Canada (BOC) decided on June 26 (local time) to raise its benchmark interest rate for the sixth consecutive time at its monetary policy meeting, but the rate hike was smaller than the market had expected. BOC Governor Tiff Macklem, who slowed the pace of tightening, said at a press conference after the monetary policy meeting that "the end of tightening is near."

According to major foreign media, the BOC raised the benchmark interest rate by 0.5 percentage points from 3.25% to 3.75% at the meeting. The Canadian benchmark interest rate reached its highest level since the global financial crisis in 2008. Analysts had expected a 0.75 percentage point increase to 4%.

Foreign media evaluated that Canada, having decided on rapid and strong tightening so far, also showed a proactive stance in slowing the pace of tightening.

Canada began raising its benchmark interest rate in March this year, making it the second fastest among the Group of Seven (G7) countries after the United Kingdom. At the monetary policy meeting in July, Canada decided on a 1 percentage point rate hike, and to date, it is the only G7 country to have decided on a 1 percentage point increase.

Among officials of the U.S. central bank, the Federal Reserve (Fed), there have also been increasing mentions of slowing the pace recently. However, the market currently expects that the Fed will decide on a 0.75 percentage point increase at its monetary policy meeting on July 1-2 and will not slow the pace of tightening.

Governor Macklem said at the press conference, "There is more to be done to ease persistent inflation," but added, "The tightening phase is nearing its end." He added, "We are getting closer and closer to the end of tightening, but we have not reached it yet."

He also said, "The BOC sees that it will need to raise the benchmark interest rate further," and "Additional hikes will be determined based on changes in economic conditions."

According to the statement released that day, the BOC officially diagnosed that the Canadian economy still has excessive demand and that a tight labor market, where it is not easy to find workers, continues. However, the BOC analyzed that the interest rate hikes have begun to affect the economy, with real estate prices falling and household spending slowing down.

Canada's consumer price inflation rate was 8.1% in June and fell to 6.9% in September. This was largely due to the recent decline in oil prices. However, the BOC still judged that inflation persists. The BOC explained that the core consumer price inflation rate, excluding the volatile energy and food items, has not yet shown meaningful signs of easing. The BOC expects inflation to slow to the monetary policy target of 2% by the end of 2024.

Governor Macklem emphasized that the BOC is striving to balance controlling inflation so that the price crisis does not continue while avoiding excessive monetary policy tightening. He pointed out that excessive tightening could have adverse effects on the labor market and make it difficult for Canadians to repay their debts.

Governor Macklem stressed, "We are carefully monitoring the impact of the elevated benchmark interest rate on economic activity and prices."

Regarding economic growth, Governor Macklem said it is expected to stagnate for the next few quarters. He added that as inflation slows and predictable effects appear, solid growth will emerge in the second half of next year.

This content was produced with the assistance of AI translation services.