For the second month in a row, the Bank of Canada (BoC) raised rates by 0.25%, bringing its policy interest rate to an even 5% on Wednesday.
Heading into today's announcement, economists wavered on whether the bank would implement yet another rate hike, likening it to a "coin toss." Some, like Desjardins Economist Marc Desormeaux, said that a hike is ‘all but assured,’ while others, like CIBC Senior Economist Andrew Grantham, cautioned that yet another increase -- what would be the tenth since March 2022 -- could be a "mistake."
Although inflation has come down significantly, hitting 3.4% in May -- its lowest level in nearly two years -- a considerable bump in job numbers, coupled with the months-long rise in housing resales and an anticipated 0.4% increase in real GDP made a strong case for another interest rate hike.
In its announcement, the bank called the raise a continuation of its "policy of quantitative tightening."
"Canada’s economy has been stronger than expected, with more momentum in demand," the announcement reads. "Consumption growth has been surprisingly strong at 5.8% in the first quarter. While the Bank expects consumer spending to slow in response to the cumulative increase in interest rates, recent retail trade and other data suggest more persistent excess demand in the economy."
The bank also pointed to the housing market, where new listings and new construction aren't able to keep up with demand amidst a growing population. "Newcomers are helping to ease the shortage of workers while also boosting consumer spending and adding to demand for housing," the announcement says.
As interest rates make their way through the economy, the bank is anticipating a slowdown in economic growth, averaging around 1% through the second half of this year and the first half of next year.
The next BoC rate announcement is scheduled for September 6.