Barrie 
The Bank of Canada has raised its target for the overnight rate to 4¾ per cent by 25 basis points, accompanied by the Bank Rate at 5 per cent and the deposit rate at 4¾ per cent. In addition, the bank has decided to continue its policy of quantitative tightening.
This comes amid a global decrease in consumer price inflation, primarily due to reduced energy costs compared to the previous year, but persistent underlying inflation.
In Q1 of 2023, Canada’s economy outperformed expectations, boasting a GDP growth of 3.1%.
Bank of Canada says the consumption growth was robust and widespread, with a boost from population gains. Service demand continued its rebound, while spending on interest-sensitive goods grew, and housing market activity saw a recent upswing. The labour market remains tight, with high immigration and participation rates expanding the workforce, and new employees being swiftly hired due to strong labour demand.
CPI inflation saw a 10-month high in April at 4.4%, as prices for various goods and services were higher than anticipated. Despite lower energy costs, goods price inflation grew, while service price inflation stayed high due to strong demand and a tight labour market.
Per the news release, the Bank projects that CPI inflation will soften to around 3% in the summer, given the impact of lower energy prices and large price gains from last year dropping out of annual data. However, persistent excess demand and core inflation running in the 3½-4% range over recent months raise concerns about CPI inflation significantly exceeding the 2% target.
According to the news release, major central banks globally are indicating that interest rates may need to increase further to restore price stability, particularly as economic growth slackens in the face of these higher interest rates.
The central bank says the Governing Council has decided to increase the policy interest rate, believing that the current monetary policy wasn’t restrictive enough to rebalance supply and demand and achieve a sustainable 2% inflation rate. They will continue to monitor core inflation and CPI inflation outlook, assessing the correlation of excess demand, inflation expectations, wage growth, and corporate pricing behaviour with the inflation target.
The next interest rate decision will be on July 12, 2023.
