Canada central bank raises key interest rate to 4.5%

Canada's central bank on Wednesday raised its key lending rate for the eighth time in less than a year, this time by 25 basis points to 4.5 percent, as it tries to tame inflation.

This is the highest interest rate in the Group of Seven country since 2007. At the start of 2022, it was at a record low of just 0.25 percent.

The bank "expects to hold the policy rate at its current level while it assesses the impact of the cumulative interest rate increases," it said in a statement.

But it also said it was "prepared to increase the policy rate further if needed" to reach the government's inflation target of two percent.

For Desjardins analyst Royce Mendes, "that likely ensures a pause in the rate hiking cycle for at least the next few months."

The hike of 25 basis points was the smallest since March.

"Inflation is projected to come down significantly this year," the bank said, though it remained at 6.3 percent in December -- three times the goal.

The central bank noted that while job markets were "still tight," it had seen "growing evidence that restrictive monetary policy is slowing activity, especially household spending."

It projected GDP growth of about one percent in 2023 and about two percent in 2024.

The bank predicted that lower energy prices, better global supply chain conditions and the series of interest rate increases would bring inflation down to "about three percent" by the middle of 2023, and back to two percent in 2024.