OTTAWA — The Bank of Canada was persuaded to hold its key interest rate steady on Wednesday as signs of a faltering economy emerge, but with inflation still above target, the central bank is walking a tight line to avoid fuelling speculation of rate cuts.
“With recent evidence that excess demand in the economy is easing, and given the lagging effects of monetary policy, governing council decided to hold the policy interest rate at five per cent,” the central bank said in a news release on Wednesday.
However, the Bank of Canada is keeping the door open to more rate hikes, with a hawkish tone as it notes its governing council is still concerned about inflationary pressures and “is ready to raise interest rates further if needed.”
Canada’s inflation rate was 3.3 per cent in July, ticking up from 2.8 per cent in the previous month.
Although inflation has slowed considerably since last summer, it’s expected to hover around three per cent for months to come.
The central bank acknowledges that inflation will even likely flare up due to higher gasoline prices before coming back down.
BMO chief economist Douglas Porter said the Bank of Canada’s decision to hold its key rate was widely expected given recent weak economic data. Now, the focus is turning to what the central bank might do next as it wrestles inflation down while trying not to send the economy into a deeper slowdown than necessary.
“They’ve clearly left the door open for the possibility that they might that they might move again,” Porter said.
“(But) our view is that, provided growth remains relatively calm and core inflation does continue to slowly come down, that the Bank of Canada’s probably done hiking interest rates.”
Statistics Canada reported last week real
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