In its latest announcement, the Bank of Canada opted to keep its key interest rate steady at five percent, asserting that it remains premature to initiate rate reductions.
The decision, unveiled on Wednesday, aligns with economists’ expectations, anticipating a status quo in the policy rate.
While inflationary pressures have been gradually receding and economic indicators are showing signs of softening, the bank underscored the persistent elevation of underlying price pressures.
Governor Tiff Macklem, in his prepared remarks, emphasized, “With inflation still close to three percent and underlying inflationary pressures persisting, the assessment of the governing council is that we need to give higher rates more time to do their work.”
Macklem further elaborated, stating, “We’ve come a long way in our fight against high inflation. But it’s still too early to loosen the restrictive policy that has gotten us this far.”
Canada witnessed a decline in its inflation rate to 2.9 percent in January, aligning once again with the Bank of Canada’s target range of one to three percent. However, the bank highlighted that its preferred core measures of inflation, excluding price volatility, continue to hover between three and 3.5 percent.
The implementation of higher interest rates has contributed to a moderation in the pace of price growth by inducing a slowdown in economic spending.
The Bank of Canada has consistently communicated its reluctance to prematurely adjust rates, mindful of the potential need for reversals in policy direction later on.
“We don’t want to keep monetary policy this restrictive for longer than we have to,” Macklem reiterated. “But nor do we want to jeopardize the progress we’ve made in bringing inflation down.”
Market analysts widely anticipate a potential initiation of interest rate reductions by the central bank around the middle of the year.
