Bank of Canada holds interest rate at 5%, but signals shift in direction
The Bank of Canada held its key overnight interest rate at five per cent for the fourth consecutive time, as inflation remains higher than desired and economic growth has not slowed enough to warrant a cut.
“The Council is still concerned about risks to the outlook for inflation, particularly the persistence in underlying inflation,” the central bank said in a Jan. 24 statement.
“Governing Council wants to see further and sustained easing in core inflation and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.”
The central bank did, however, signal a shift in discussions.
“With overall demand in the economy no longer running ahead of supply, governing council’s discussion of monetary policy is shifting from whether our policy rate is restrictive enough to restore price stability to how long to stay at the current level,” Bank of Canada governor Tiff Macklem said during a Jan. 24 news conference.
However, he said this doesn’t mean the central bank has ruled out rate increases, if necessary.
“We may still need to raise rates,” Macklem said, echoing caution that has characterized previous hold decisions.
Nevertheless, many economists expect the Bank of Canada will begin to trim interest rates later this year after a record run-up since early 2022, given Canada’s tepid economy and the central bank’s own outlook.
In response to questions from media about the timing of a potential cut, which market signals and some economists anticipate will come as early as April or June, Macklem declined to spell out a timeline.
“I worry that putting it on a calendar, it’s a false sense of precision,” he said, adding that there have been mixed
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