A former Bank of Canada economist said the central bank’s surprise decision to hike interest rates may have been a communications strategy as well as a response to strong recent economic data.

Canada’s central bank announced Wednesday that it was raising its key interest rate by a quarter of a percentage point to 4.75 per cent in its continued bid to bring down inflation, breaking from a pause on rates hikes it had held since January’s hike to 4.5 per cent.

The June rate increase went against most economists’ expectations, including those of Charles St-Arnaud, now chief economist at Alberta Central and a former economist at the Bank of Canada.

St-Arnaud told BNNBloomberg.ca that he thought the central bank would wait for more data before raising rates again, but he wasn’t necessarily surprised by Wednesday’s hike, given the recent data suggesting economic resilience to higher interest rates – particularly an uptick in inflation in Statistics Canada’s latest inflation reading.

The Bank of Canada’s reputation with Canadians may have also weighed on policymakers’ minds before deciding to hike, St-Arnaud said, and the June rate hike may have offered a way to “restore credibility” and signal its aggressiveness on inflation.

“It's as part economics, but part also expectations and communication,” St-Arnaud said in a telephone interview on Wednesday. “I think what pushed them is that (they’ve) had some reputational issues to solve.”

He noted that the Bank of Canada has taken criticism for leaving interest rates low while inflation was rising in 2021 and early 2022. Because of that, the central bank now likely wants to tell the public that it is taking the fight against inflation seriously.

“It’s probably a communication and reputational reason to do it, basically to signal to everyone and to also influence expectations that, ‘We will be aggressive. Inflation is going back to two per cent, so don't expect it to be sticky.’”


The Bank of Canada cited data showing a recent rise in inflation, stronger-than-expected economic growth, rebounds in consumer spending and housing and resilience in the labour market in a Wednesday statement explaining its policy decision.

“Overall, excess demand in the economy looks to be more persistent than anticipated,” the Bank of Canada’s statement read, noting that this has complicated its fight to get inflation down to two per cent.

“With three-month measures of core inflation running in the 3.5 to four per cent range for several months and excess demand persisting, concerns have increased that CPI inflation could get stuck materially above the two per cent target.”

St-Arnaud said the central bank’s next moves will depend on what future data show, but he noted that the Bank of Canada appears laser-focused on inflation, and more hikes may be in the cards without signs of that figure easing.

Further rate increases can’t be ruled out for the year ahead, he said, and “any talk of rate cuts in the near future should be completely erased.”

“They’re really telling us that it's inflation, front and foremost .. It’s really, ‘Our focus is only inflation. Any type of upside, surprise, you can expect that we will most likely react to it,’” he said.