Bank of Canada holds its key interest rate at 5 per cent, as Canadian economy continues to slow

The Bank of Canada held its overnight rate at 5 per cent on Wednesday, as Canada's economy continues to slow and indications that supply and demand are now approaching balance.

The Bank of Canada held its overnight rate at 5 per cent on Wednesday, as Canada’s economy continues to slow and indications that supply and demand are now approaching balance.

Interest rate increases have dampened economic growth, with Canadian economic growth averaging 1 per cent this year. The economy is expected to remain weak throughout 2024, before picking up to 2.5 per cent in 2025.

The economy is expected to remain weak throughout 2024, before picking up to 2.5 per cent in 2025.

“With clearer signs that monetary policy is moderating spending and relieving price pressures,” reads the release from the bank. “Governing Council decided to hold the policy rate at 5 per cent and to continue to normalize the bank’s balance sheet.”

However, the bank said it remains concerned that progress towards its target rate of 2 per cent remains slow. Oil prices are higher than expected, and there is a risk they may go higher if the Israel-Gaza war turns into a regional conflict. On the domestic side, inflation expectations among households and businesses remain high, which also pose a risk to the central bank’s ability to get back to target, it said.

“Furthermore, businesses may be slower to adjust their pricing behaviour,” reads the release. “In addition, if the labour market remains tight or productivity growth remains weak, cost pressures could be higher and more persistent than projected.”