Bank of Canada Raises Interest Rates to Highest Level Since 2001: Potential Impact on the Economy and Jobs
The Bank of Canada has raised its key overnight lending rate by 25 basis points, bringing it to 4.75 percent, the highest it has been since 2001. This decision was based on the bank’s observation of stronger-than-expected economic data. While many forecasters did not anticipate a rate increase, the bank’s aim is to achieve a two percent inflation target. However, some economists express concerns that the bank’s pursuit of this target may push the Canadian economy into a recession. ‘
The bank acknowledges higher-than-expected GDP growth and a tight labor market, indicating its intention to slow the economy and increase the unemployment rate. Critics argue that this approach may lead to a significant number of job losses. The bank also attributes higher immigration rates to expanding the labor supply but acknowledges that new workers are being quickly hired due to strong demand. Critics interpret this as the bank suggesting that too many people have jobs and receive raises. The bank’s rate-hike campaign, initiated in March, aims to curb inflation by making borrowing money more expensive.
However, consumer and business spending may decrease as a result, potentially slowing down the economy. Despite the robust economic data, there were signs that the economy was already poised to slow down even without a rate hike, with weak consumer and business confidence and declining household savings. Furthermore, a significant portion of mortgages in Canada have not been renewed since the interest rate increases began, suggesting potential challenges in the future.