The Bank of Canada announced today that it is increasing its trend-setting policy interest rate from 4.75% to 5.0%, as widely expected.

This is the tenth increase since the start of 2022 when the rate was just 0.25%. The policy rate has not been this high since 2001.

The Bank cited “the accumulation of evidence that excess demand and elevated core inflation are both proving more persistent“ as the reason for today’s increase with the Bank’s Governing Council “concerned that progress towards the 2% target could stall, jeopardizing the return to price stability.”

The ultimate goal of the rate hikes is to cool off the economy just enough that inflation once again hovers around the Bank’s target rate of 2%. The risk is that higher borrowing costs could cause a hard landing in the form of a national recession.

In its updated projections, the Bank indicated that “further easing of inflation will likely take longer than expected in previous reports, with inflation projected to remain near 3% for the next year.” The Bank now expects inflation to hit 2% by mid-2025, two quarters later than projected in April.

This points to the big question going forward: is today’s increase the end of the hiking cycle?

Comments from the Bank’s Governor Tiff Macklem later today might provide more clues, but this morning’s announcement suggests the Bank will continue to base its decisions on incoming economic data.

With two inflation rate releases, one Labour Force Survey report, and two GDP readings between now and the Bank’s next fixed announcement date* of September 6, it will have lots to consider in this regard.

*Each year, the Bank of Canada sets eight fixed dates on which it announces whether or not it will change its policy interest rate. There are three more announcement dates in the 2023 calendar: September 6, October 25, and December 6.

Answer to the previous trivia question: There are nine teams in the Canadian Football League including the Edmonton Elks and the Calgary Stampeders.

Today’s trivia question: In what year did the Bank of Canada begin publishing its Monetary Policy Report?