Bank of Canada holds interest rate at 5 per cent

Bank of Canada Governor Tiff Macklem speaks during a fireside chat Tuesday, Feb. 6, 2024 in Montreal. THE CANADIAN PRESS/Christinne Muschi

The Bank of Canada held its policy rate at 5 per cent on Wednesday, citing continued concerns about the inflation outlook. The bank has held its rate at 5 per cent since last July.

“It’s still too early to consider lowering the policy interest rate,” said Bank of Canada Governor Tiff Macklem, during his opening remarks. “Looking ahead, we continue to expect inflation will be close to 3 per cent through the middle of the year before easing in the second half.”

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In January, inflation was 2.9 per cent, still above the bank’s 2 per cent target. Core inflation remains in the 3- to 3.5-per-cent range. The central bank says higher rates need more time to do their work.

“Recent inflation data suggest monetary policy is working largely as expected,” said Macklem. “But future progress on inflation is expected to be gradual and uneven, and upside risks to inflation remain.”

Macklem said global risks include recent attacks on shipping lanes in the Red Sea, which could lead to the disruption of oil markets and lead to higher prices. On the domestic side, the governor said there is a risk that the “stickiness of underlying inflation” could stall.

The Canadian economy remained weak in the fourth quarter of 2023, with annual GDP growing by 1 per cent. Employment is growing at a slower rate than the population, which has brought the labour market into better balance.

“Job vacancies have returned to more normal levels, and the pace of hiring has been modest,” Macklem said.

Macklem pointed to gasoline prices and shelter price pressures as key factors in driving inflation volatility.

Ashish Utarid, assistant vice-president of Investment Strategy with IG Wealth Management, says the bank is proceeding with caution.

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“The bank is also likely waiting to see what steps the U.S. Federal Reserve will take,” said Utarid, in an email to CTV News. “But the need for a rate cut is becoming more evident as the economy struggles to gain momentum.”

In response to a question about what the sequence of rate cuts would look like in the second half of the year, Macklem would not commit to the timing of a rate cut, but did provide some insight into what the pace may look like, once the bank decides to slash its overnight rate.

“It’s safe to say we won’t be lowering rates at the rate we raised them,” he said.

The next scheduled rate announcement is on April 10.