Bank of Canada maintains interest rate of 5%

The Bank of Canada brushed off questions about rate cuts as it held its policy at five per cent on Wednesday, arguing that inflation is still too high to justify lower borrowing costs.

The Bank of Canada’s Governor Tiff Macklem, who held a news conference following the announcement, acknowledged that inflation has continued to ease as the economy weakens.

He faced a barrage of questions from reporters on when the central bank might pivot to rate cuts, but Macklem held the line.

Higher interest rates have helped to slow the pace of price growth by causing a pullback in spending in the economy.

Canada’s inflation rate dropped to 2.9 per cent in January, falling back within the Bank of Canada’s one to three per cent target range.

However, rapidly rising housing costs are standing in the way of lowering inflation even further.

JANUARY: Bank of Canada continues to hold interest rate at 5%

“In the six weeks since our January decision there have been no big surprises. Economic growth has remained weak and inflation has eased further as high interest rates restrain demand and relieve price pressures.” said Macklem.

“But with inflation still close to three per cent and underlying inflationary pressures persisting, the assessment of the governing council is that we need to give high interest rates more time to do their work.”

While the decision carried no surprises, economists are doubling down on their expectation that the first cut will come through in June as they expect the economy to weaken further.

He said that underlying inflationary pressures continue to keep inflation around 3 per cent, and that high interest rates “need more time to do their work.”

The bank also plans to continue its policy of quantitative tightening.

The next overnight rate announcement is expected to be announced on April 10.