OTTAWA – In a decision made on Wednesday, the Bank of Canada opted to keep its key interest rate steady at five percent, refraining from further rate increases as the economy shows signs of stumbling.
In a press release, the central bank stated, “With recent indications of reduced excess demand in the economy and considering the delayed effects of monetary policy, the governing council has chosen to maintain the policy interest rate at five percent.”
Nevertheless, the Bank of Canada has left the door open for potential future rate hikes, underscoring its ongoing concern regarding inflationary pressures and its readiness to implement additional interest rate hikes if necessary.
Canada’s inflation rate stood at 3.3 percent in July, up from 2.8 percent the previous month, and it is anticipated to hover around the three percent mark for the foreseeable future.
The central bank’s decision to keep rates unchanged aligns with mounting evidence that higher interest rates are exerting downward pressure on economic activity.
Last week, Statistics Canada reported a contraction in real gross domestic product during the second quarter, leading forecasters to anticipate a pause in further rate hikes.
“The Canadian economy is now experiencing a phase of diminished growth, which is essential to alleviate price pressures,” stated the central bank.
Moreover, Canada’s labor market has exhibited signs of weakening, with the unemployment rate increasing for three consecutive months.
This announcement follows the Bank of Canada’s recent interest rate hikes at its two previous meetings, marking the conclusion of a prior halt on rate increases.
In total, the central bank has raised its key interest rate ten times since March 2022, elevating it from nearly zero to its highest level since 2001.
These rate hikes are projected to continue impacting the economy, curbing consumer demand and tempering business investments. Economists estimate that it takes approximately one to two years for a rate hike to exert its full influence on demand and business activities.
Bank of Canada Governor Tiff Macklem is scheduled to hold a press conference on Thursday, following a speech to the Calgary Chamber of Commerce.