Bank of Canada raises rate again to 4.25% — but opens door to staying there

The Bank of Canada raised its benchmark interest rate by 50 basis points on Wednesday, to 4.25 per cent.The move was widely expected by economists, who were anticipating a rate hike of either 25 or 50 points.Canada's central bank has raised its rate seven times this year in its fight to wrestle inflation into submission. In the process, the bank has taken its rate from functionally zero to its highest point since 2008 — its fastest pace of rate hikes since inflation targeting began in the 1990s. Those rate hikes have had a huge impact on the rates that Canadian consumers and businesses get from their banks on things like savings accounts and mortgages.

Canada's five biggest banks moved swiftly to match the bank's increase, raising their prime lending rates by the same 50 basis points. The prime lending rate at all of Canada's major lenders will now be 6.45 per cent as of Thursday morning. That will increase borrowing costs for anyone with a variable rate loan.

In previous rate hikes this year, the bank made it clear that it would continue to raise its trend-setting rate until inflation came back to within the range of up to three per cent that it likes to see.As recently as October, the bank was saying it "expects" that rates will have to go even higher, while the month before, it said it "still judge[s]" that rates would have to go higher.Even after announcing its biggest rate hike ever — a full percentage point — in July, the bank was saying it "continues to judge that interest rates will need to rise further."But Wednesday's statement accompanying the rate decision was a clear departure from that tone, as the language shifted to a more neutral, wait-and-see approach — and a clear suggesting the bank may be getting ready to stand on the sidelines for a while.

In its statement on Wednesday, the bank says it "will be considering" whether or not the rate has to go higher in order to bring supply and demand back into balance and return inflation to target.

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