Bank of Canada holds interest rate at 5% as economy weakens

financialpost.com:

The Bank of Canada held interest rates steady and kept the door open to further hikes, with economists seeing its historic tightening cycle at its likely end point.

Policymakers led by governor Tiff Macklem maintained the benchmark overnight lending rate at five per cent on Sept. 6, the highest level in 22 years. They acknowledged a rapid downshift in the economy and warned that price pressures are proving tough to wrestle all the way back to their target.

“With recent evidence that excess demand in the economy is easing, and given the lagged effects of monetary policy, Governing Council decided to hold,” the bank said. Officials, however, remain “concerned about the persistence” of underlying inflation and are “prepared to increase the policy rate further if needed.”

The move was expected by economists in a Bloomberg survey and market reaction was muted. The loonie dipped, trading at $1.3660 per U.S. dollar at 12:11 p.m. Ottawa time. Yields on benchmark Canada two-year bonds were up slightly to 4.701 per cent.

While the rate statement suggests policymakers are comfortable waiting to assess how the deteriorating economy will restore price stability, officials are still bothered enough by the persistent momentum in inflation to remain cautious.

They’re also weighing the cumulative impact of 475 basis points of hikes since March 2022. Keeping a hawkish bias this time around contrasts with January’s explicit pause signal and is likely enough to keep premature bets on rate cuts at bay — especially if Macklem is able to reinforce his inflation worries in a speech and press conference Thursday in Calgary.

Most analysts think the Bank of Canada is finished raising rates.

“We doubt it will need to follow through” with another