Bank of Canada’s Surprise Hike Pushes Rates to Highest in 22 Years

The pause is over in Canada also.

The Bank of Canada on Wednesday surprised markets by hiking its overnight rate to a 22-year high of 4.75 percent. The central bank had held rates steady since January and many analysts expected it to stay on hold despite data showing Canada’s economy was growing faster than anticipated.

The Bank of Canada’s announcement follows the decision of Australia’s central bank on Tuesday top rais interest rates by a quarter-point to an 11-year high.

Central banks around the world, including in the U.S., have had to grapple with strong economic performance despite raising rates at the fastest pace in recent memory.

In Canada, consumer spending has been surprisingly strong and the housing market has recently picked up. Demand for services has surged and the labor market has remained extremely tight as demand for workers proved persistent.

The story is very much the same in the U.S. Central bankers here have signaled that they may skip hiking at their meeting next week but warned that hikes may resume later this year. Unlike Australia and Canada, the U.S. Federal Reserve continued to increase rates through May.

“Concerns have increased that CPI inflation could get stuck materially above the 2 percent target,” the Bank of Canada said. The bank noted that core inflation has remained stubbornly high for several months.

Inflation accelerated for the first time in 10 months in April to 4.4 percent but remains well-below last summer’s peak of 8.1 percent.