The Bank of Canada held its key interest rate steady at five per cent today, citing recent evidence that suggests the economy is weakening.
The Bank of Canada held interest rates steady, but kept the door open to further hikes as inflation proves sticky.
While the rate pause and its accompanying statement suggest policymakers are comfortable waiting to assess whether the deteriorating economy will restore price stability, officials remain worried about persistent momentum in inflation. Keeping that hawkish bias may allow Macklem to avoid a repeat of January’s explicit pause signal, which led markets to quickly price in future rate cuts and rekindled Canada’s housing market.
After its January declaration, the Bank of Canada moved to the sidelines for five months. It resumed hiking in June and July after surprisingly strong economic growth. But there’s ample recent evidence the central bank has now done enough to cool excess demand. But with wage growth stuck around four per cent or five per cent, and inflationary pressures remaining broad-based, policymakers are still seeing the difficulty in the last mile of returning inflation to the two per cent target. “The longer high inflation persists, the greater the risk that elevated inflation becomes entrenched, making it more difficult to restore price stability.”
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