Your Business News

Bank of Canada raises rates by a half percentage point

April 13, 2022

Authored by RSM Canada LLP

Edwin P. Reilly, CPA, CA shared this article

REAL ECONOMY BLOG | April 13, 2022

In an effort to target inflation that is at its highest level in decades, the Bank of Canada on Wednesday increased its policy interest rate by 50 basis points, to 1%, and said it would begin to reduce its balance sheet, known as quantitative tightening.

The move was widely expected following the bank’s comment last month that it would act forcefully to control inflation, particularly over the long run, in an effort to head off the possibility of inflation becoming entrenched for many years.

The central bank has sound reasons to accelerate the pace of rate hikes:

  • Global events are adding pressure. First, global events, including the war in Ukraine and COVID-19 outbreaks in China that led to lockdowns in key trade and manufacturing hubs, add pressure to the supply chains and drive the inflation outlook higher. In particular, the war in Ukraine alone added 0.7% to the Bank of Canada’s inflation outlook.
  • The Canadian economy is overheated. Consumer demand remains strong despite price increases, and the unemployment rate is the lowest in nearly half a century. Increasing interest rates would make borrowing more expensive, which in turn will cool the economy, including the housing market.

The Bank of Canada’s balance sheet ballooned the most among all major central banks, increasing almost five-fold since the pandemic began, compared with a 114% increase for the Federal Reserve. Quantitative tightening is in order, and the bank said it would stop replacing maturing securities on its balance sheet later this month. An outright selling off of assets in the near future would not be surprising.

Nonetheless, monetary policies take time to work through the market, so one should not expect magic. Inflation will remain around 6% in the coming months before the effects of rising interest rates are felt.

Amid the uncertainty, the Canadian economy is well positioned to grow this year given its competitive advantages in the commodities and energy sectors. For this reason, a rate hike is a given in the next announcement in June, and a 50 basis-point increase would not be out of the question.

Let's Talk!

Call us at 1 855 363 3526 or fill out the form below and we'll contact you to discuss your specific situation.

  • Topic Name:
  • Should be Empty:

This article was written by Tu Nguyen and originally appeared on 2022-04-13 RSM Canada, and is available online at

RSM Canada Alliance provides its members with access to resources of RSM Canada Operations ULC, RSM Canada LLP and certain of their affiliates (“RSM Canada”). RSM Canada Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM Canada. RSM Canada LLP is the Canadian member firm of RSM International, a global network of independent audit, tax and consulting firms. Members of RSM Canada Alliance have access to RSM International resources through RSM Canada but are not member firms of RSM International. Visit for more information regarding RSM Canada and RSM International. The RSM trademark is used under license by RSM Canada. RSM Canada Alliance products and services are proprietary to RSM Canada.

FCR a proud member of RSM Canada Alliance, a premier affiliation of independent accounting and consulting firms across North America. RSM Canada Alliance provides our firm with access to resources of RSM, the leading provider of audit, tax and consulting services focused on the middle market. RSM Canada LLP is a licensed CPA firm and the Canadian member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM Canada Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.

For more information on how FCR can assist you, please call us at 1 855 363 3526

Important Notice:

FCR will now redirect you to CCH Portal where your FCR Client Portal login is located.

Share This