Canada maintains key interest rate at 5%

Canada maintains key interest rate at 5%

The Bank of Canada has maintained its key interest rate at five percent
The Bank of Canada has maintained its key interest rate at five percent. Photo: Dave Chan / AFP/File
Source: AFP

Canada's central bank on Wednesday held its key lending rate at five percent, citing the global economic slowdown and easing inflation.

But the Bank of Canada nevertheless left the door open to eventual fresh rate hikes, saying it was "still concerned about risks" to the outlook for prices down the road.

"With further signs that monetary policy is moderating spending and relieving price pressures, Governing Council decided to hold the policy rate at 5 percent," the Bank of Canada said in a statement.

The bank has left its benchmark interest rate at five percent for months, after nearly a dozen hikes over an 18-month period as it tried to rein in inflation to its target two percent.

The G7 nation's benchmark rate has since July been at its highest level in 22 years.

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After inflation in Canada hit a high point of 8.1 percent in June 2022, it continued to slow in October, to 3.1 percent.

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The Bank of Canada said its current monetary policy was "clearly restraining spending."

The data "suggest the economy is no longer in excess demand," the central bank said, adding the economic slowdown has reduced price pressures for an array of goods and services.

It also noted that the country's labor market "continues to ease," with job creation slower than the increase in the workforce; thus, the number of vacancies was down.

Canada's real gross domestic product contracted at an annual rate of 1.1 percent in the third quarter, after growth of 1.4 percent in the second quarter.

In recent months, the government of Canada's liberal Prime Minister Justin Trudeau has announced new measures to help families weather the economic downturn, especially with respect to the housing crisis.

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The Bank of Canada said rent and other housing costs were still on the rise in October.

"Governing Council wants to see further and sustained easing in core inflation," the bank said in its statement.

Keeping rates steady was the bank's "only option," said James Orlando, an economist at TD Bank.

"But with inflation still above 3%, we get why the Bank of Canada isn't ready to declare victory," he added.

For Royce Mendes, an analyst at Desjardins, the central bank may not take a more optimistic view until it releases new forecasts in January "that could include a slightly quicker return to the 2% inflation target."

The Bank of Canada's next interest rate decision is expected on January 24, 2024.

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Source: AFP

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