Bank of Canada holds key rate, signals hikes could be over

The Bank of Canada kept its benchmark interest rate steady at 5.0 per cent on Wednesday and hinted that its tightening cycle might have peaked, though inflation remains a concern.

The Bank of Canada held its benchmark interest rate steady at 5.0 per cent on Wednesday and hinted that its tightening cycle might have peaked.

The decision, which marks the fourth consecutive hold from the central bank, was widely expected by economists.

According to prepared remarks from Bank of Canada governor Tiff Macklem, conversations at the central bank have shifted from debating whether interest rates are high enough to how long the central bank needs to keep rates at current levels.

Heading into Wednesday’s decision, market watchers had started to forecast a timeline for rate cuts, with calls for easing to start between spring and summer of 2024.

Macklem cautioned, however, that rates could still rise further if inflation does not cooperate.

“Inflation is still too high, and underlying inflationary pressures persist,” he said. “We need to give these higher rates time to do their work.”

The Bank of Canada has been raising the cost of borrowing since March 2022 in an effort to tamp down inflation, which has declined sharply from highs of 8.1 per cent. Annual inflation ticked up to 3.4 per cent in December from 3.1 per cent the month previous. But economists have pointed to slowing elsewhere in the economy as likely to tame price pressures.

Revised forecasts in the Bank of Canada’s Monetary Policy Report (MPR) released Wednesday reaffirm the central bank’s expectations that inflation will hit its two per cent target in 2025.