The Bank of Canada held its key benchmark interest rate at 5 per cent Wednesday, saying data suggest the economy is no longer in excess demand.
“In Canada, economic growth stalled through the middle quarters of 2023,” the Bank said in its statement on Dec. 6.
“Higher interest rates are clearly restraining spending: consumption growth in the last two quarters was close to zero, and business investment has been volatile but essentially flat over the past year.”
The bank said the weakening economy is easing inflationary pressures. CPI inflation has slowed to 3.1 per cent and the Bank’s preferred measures of core inflation came in at the low end of 3.5 to 4 per cent in October.
“With further signs that monetary policy is moderating spending and relieving price pressures, Governing Council decided to hold the policy rate at 5 per cent and to continue to normalize the Bank’s balance sheet,” it said.
But policy makers didn’t rule out further tightening if necessary.
“Governing Council is still concerned about risks to the outlook for inflation and remains prepared to raise the policy rate further if needed,” said the statement.
The Bank’s decision toasts “small victories against inflation” while not yet breaking out the champagne, said CIBC chief economist Avery Shenfeld.
Economists had not expected policy makers to declare the end of the hiking cycle today, but the statement suggests they are leaning that way.
“The Bank’s nod to broader progress against inflation and the fact that the economy is no longer clearly overheated suggest that the central bank isn’t at this point really giving much thought to additional tightening,” said Shenfeld.
The Bank of Canada’s hold comes as speculation grows that central banks globally,
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