Bank of Canada raises key interest rate by 0.5 per cent

OTTAWA — The Bank of Canada is raising its key interest rate by the highest amount in more than 20 years in the face of rising inflation.

The central bank is increasing its policy rate by half a percentage point to one per cent and warning that rates will need to rise further, it said, while also raising its expectations for the inflation rate.

It is also easing pandemic-era stimulus measures by beginning so-called quantitative tightening later this month, when the government bonds it holds will no longer be replaced when they mature.

In making its interest rate decision, the Bank of Canada says the spike in energy and other commodity prices in the wake of Russia’s invasion of Ukraine are driving inflation higher than its earlier expectations.

It now says the annual inflation rate will average almost six per cent in the first half of this year compared with its January forecast of close to five per cent.