Most of Canada has heard that the Bank of Canada raised the short-term target interest rate from 0.5% to 0.75%, which was the first increase in about 5 years. The rate increase itself serves to increase a very small rate into another very small rate and is insignificant other than the fact that this sounds like it is a warning shot.
Indeed, when reading the Monetary Policy Report, I’ve come to the conclusion that there was really no justification for raising interest rates in accordance to the Bank’s mandate of maintaining inflation at a 1-3% band – their own research suggested that the economy was headed in that direction with the current monetary policy. The decision to raise interest rates appears to be completely arbitrary, or guided by other considerations that are not captured in the standard reports.
It is this scenario that makes me believe that barring any economically cataclysmic events, the Bank should probably raise again (to 1%), but for reasons that has nothing to do with maintaining a 2% CPI rate.
All in all, this policy decision by the Bank of Canada is mysterious.