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Special Report

Canada Monetary Policy
Research Brief

October 2022

Sticky Inflation Results in Additional Interest Rate Hike;
Pace of Policy Tightening Slows

Bank of Canada remains hawkish. Ongoing rapid inflation, fueled by supply chain bottlenecks and excess demand stemming from a relatively healthy labour market, led the BoC to raise the overnight rate by an additional 50 basis points in October. This is the sixth rate hike this year, bringing the policy rate to 3.75 per cent — the highest it has been since early 2008. While inflation has softened, reaching 6.9 per cent in September — which is down from the high of 8.1 per cent witnessed in June — price growth remains well above the target of 2.0 per cent. The Bank, however, is now considering the overall health of the economy and the possibility of an upcoming recession, not just price growth. This may be a reason why the BoC is slowing the pace of its tightening schedule, possibly indicating that its quantitative tightening program is nearing an end, with one further rate hike expected in December.

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