Source: AFP
Canada’s central bank kept its key lending rate at 5% on Wednesday, citing a global economic slowdown and easing inflation.
But the Bank of Canada left the door open to potential further rate hikes, saying it “remains concerned about the risks” to the price outlook going forward.
“With further indications that monetary policy is easing spending and easing price pressures, the Board of Governors decided to keep the policy rate at 5 percent,” the Bank of Canada said in a statement.
The bank has left its key rate at 5% for months, after nearly a dozen hikes over an 18-month period, as it sought to contain inflation to its 2% target.
The benchmark interest rate of the G7 country has been at its highest level in 22 years since July.
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After Canadian inflation peaked at 8.1% in June 2022, it continued to slow in October to 3.1%.
The Bank of Canada said its current monetary policy is “clearly restraining spending.”
The data “suggests that the economy no longer has excess demand,” the central bank said, adding that the economic slowdown has eased price pressures for a range of goods and services.
He also noted that the country’s labor market “continues to slacken,” with job creation lagging behind labor force growth. Thus, the number of vacancies decreased.
Canada’s real gross domestic product contracted at an annual rate of 1.1% in the third quarter, after growing 1.4% in the second quarter.
In recent months, Canada’s Liberal Prime Minister Justin Trudeau’s government has announced new measures to help families deal with the economic downturn, especially in relation to the housing crisis.
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The Bank of Canada reported that rent and other housing costs continued to rise in October.
“The Board wants to see further and sustained easing of core inflation,” the bank said in its statement.
Keeping rates steady was the bank’s “only option,” said James Orlando, an economist at TD Bank.
“But with inflation still above 3%, we understand why the Bank of Canada is not ready to declare victory,” he added.
For Desjardins analyst Royce Mendes, the central bank may not take a more optimistic view until it releases new forecasts in January “which could include a slightly faster return to the 2% inflation target.”
The Bank of Canada’s next interest rate decision is due on January 24, 2024.
Source: AFP