BoC surprises the markets by raising the overnight rate by 25bps to 4.75% today. Correspondingly, the Bank Rate now sits at 5.00%, and deposit rate at 4.75%.
In the accompany statement, BoC noted that the “accumulation of evidence” reflected that monetary policy was “not sufficiently restrictive to bring supply and demand back into balance and return inflation sustainably to the 2% target”.
The Governing Council will “continue to assess the dynamics of core inflation and the outlook for CPI inflation”, in particular the “evolution of excess demand, inflation expectations, wage growth and corporate pricing behaviour”.
The central bank also noted that the economy was “stronger than expected” in Q1, and ” excess demand in the economy looks to be more persistent than anticipated.”
Good price inflation “increased” while services price inflation “remained elevated”. It continues to expect CPI inflation to east to around 3% in the summer.
However, “with three-month measures of core inflation running in the 3½-4% range for several months and excess demand persisting, concerns have increased that CPI inflation could get stuck materially above the 2% target.”
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