Bank of Canada holds key rate but leaves door open to future hikes
The Bank of Canada hit pause on its interest rate hiking cycle on Wednesday, leaving its policy rate unchanged at 5.0 per cent.
But the central bank said in a statement accompanying the announcement that it was “prepared to increase the policy interest rate further if needed” as it “remains concerned about the persistence of underlying inflationary pressures.”
Canada’s annual inflation rate ticked back up to 3.3 per cent in July from 2.8 per cent the month before. The Bank of Canada warned Wednesday that it expects inflation to be “higher in the near term” thanks to rising gasoline prices before easing again.
Price pressures remain “broad-based,” the Bank said, and core inflation metrics have shown “little recent downward momentum in underlying inflation.”
But Wednesday’s rate hold was widely expected among economists as Canada’s economy has shown signs of slowing more sharply than the central bank had initially forecast.
Consumers are spending less on credit and Canada’s housing market continues to slow, the central bank noted in its statement.
The Bank of Canada also said that global slowdowns in China, alongside signs of easing in the Canadian jobs market, were among the factors supporting a hold.
The Bank of Canada’s policy rate sets the cost of borrowing for Canadian lenders and informs rates consumers pay on debt such as mortgages. A rapid rate hike campaign since March 2022 has tried to cool the economy and discourage spending in an effort to rein in rampant inflation — a cause shared by many central banks around the world.
The effects of interest rate hikes typically take between a year and 18 months to be fully felt on the economy, and the Bank noted that “lagged effects” of previous rate increases will continue
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