Canada central bank holds key lending rate at 5%

Canada central bank holds key lending rate at 5%

The Bank of Canada's governing council, led by Tiff Macklem, wants to see 'further and sustained easing in core inflation'
The Bank of Canada's governing council, led by Tiff Macklem, wants to see 'further and sustained easing in core inflation'. Photo: Dave Chan / AFP
Source: AFP

The Bank of Canada on Wednesday held its key lending rate at five percent for the fourth time in a row, saying it remains concerned about stubbornly high inflation.

Despite a slower economy, the bank said in a statement that its "governing council wants to see further and sustained easing in core inflation," dampening hopes of imminent rate cuts.

Many economists expected it would start cutting rates as early as April or June.

The central bank began hiking rates from a record low of 0.25 percent in March 2022 in a bid to tame soaring inflation.

Inflation had been steadily falling from a June 2022 peak of 8.2 percent -- a sign that higher borrowing costs were having the desired impact.

But a small uptick last month to 3.4 percent has arguably complicated the path to a 1-3 percent range desired by the bank.

Read also

Did central banks break inflation? Some economists have doubts

Core inflation measures, which excludes volatile food and energy prices, meanwhile, "are not showing sustained declines," the bank said.

"The Bank of Canada isn't ready, willing or able to bring interest rate relief just yet, but dangled some hints that lower rates are on the way later this year," CIBC Economics analyst Avery Shenfeld said in a research note.

He and others noted that the bank has dropped language from earlier releases that left open the possibility of further rate hikes.

"Canadian central bankers appear to be waving the white flag on further rate hikes," said Desjardin analyst Royce Mendes.

Its course, Shenfeld added, "has shifted from a discussion of whether rates are high enough to one about how long they need to keep rates at 5 percent. That's a dovish tilt."

Read also

Most Asian markets rise after Wall St record

He added that cuts of at least 150 basis points this year will be needed eventually "to get the economy moving again after its current stall."

The central bank said global economic growth was slowing and inflation was easing across most economies.

"In Canada, the economy has stalled since the middle of 2023 and growth will likely remain close to zero through the first quarter of 2024," it estimated.

Consumer spending and business investment are down, and "supply has caught up with demand," leaving only modest excess supply in the economy.

Job vacancies also have returned to near pre-pandemic levels and new job creation has slowed despite rising wages.

The bank forecast that Canadian economic growth will "strengthen gradually" around the middle of 2024, followed by an uptick in household spending and exports that are likely to give a boost to business investment.

Overall, it said it expects Canada's economy to grow 0.8 percent in 2024 and 2.4 percent in 2025, roughly unchanged from its October projection.

Read also

US Fed official says 'premature' to expect rate cuts soon

Inflation, it added, would likely remain close to 3 percent over the coming year, before gradually easing in 2025.

New feature: Сheck out news that is picked for YOU ➡️ click on “Recommended for you” and enjoy!

Source: AFP

Authors:
AFP avatar

AFP AFP text, photo, graphic, audio or video material shall not be published, broadcast, rewritten for broadcast or publication or redistributed directly or indirectly in any medium. AFP news material may not be stored in whole or in part in a computer or otherwise except for personal and non-commercial use. AFP will not be held liable for any delays, inaccuracies, errors or omissions in any AFP news material or in transmission or delivery of all or any part thereof or for any damages whatsoever. As a newswire service, AFP does not obtain releases from subjects, individuals, groups or entities contained in its photographs, videos, graphics or quoted in its texts. Further, no clearance is obtained from the owners of any trademarks or copyrighted materials whose marks and materials are included in AFP material. Therefore you will be solely responsible for obtaining any and all necessary releases from whatever individuals and/or entities necessary for any uses of AFP material.