UPDATE - Bank of Canada raises interest rates by 25 basis points

ADDS INFLATION FIGURES, BANK'S FORECAST

By Ovunc Kutlu

ISTANBUL (AA) - The Bank of Canada hiked interest rates Wednesday by 25 basis points, as the central bank continued its policy of quantitative tightening.

The target for the overnight rate has been increased to 4.75%, with the bank rate now at 5% and the deposit rate climbing to 4.75%.

"Globally, consumer price inflation is coming down, largely reflecting lower energy prices compared to a year ago, but underlying inflation remains stubbornly high," the bank said in a statement.

"While economic growth around the world is softening in the face of higher interest rates, major central banks are signaling that interest rates may have to rise further to restore price stability," it added.

While the market expectation for the central bank was to hold the rates steady, the last time the Bank of Canada hiked rates was Jan. 25.

Canada's annual consumer inflation slowed to 4.3% in March, easing from the 5.2% year-on-year gain in January, but rose to 4.4% in April, according to the latest figures by Statistics Canada.

The figures, however, still showed a significant slowdown from the 8.1% annual gain in June 2022, which was the highest in 39 years.

The Bank of Canada noted that April's annual inflation gain of 4.4% was the first increase in 10 months, "with prices for a broad range of goods and services coming in higher than expected."

"Goods price inflation increased, despite lower energy costs. Services price inflation remained elevated, reflecting strong demand and a tight labor market," it added.

The central bank said it continues to expect consumer inflation to ease to around 3% this summer, "as lower energy prices feed through and last year’s large price gains fall out of the yearly data."

But it noted there are rising concerns that consumer inflation could get stuck above the bank's target of 2% since the three-month measures of core inflation are running in the 3.5% - 4% range for several months and there is excess consumer demand.