The Bank of Canada is holding its key interest rate at 4.5 percent.
In a March 8 announcement, governor Tiff Macklem said the country’s central bank is weighing the impact of recent rate increases and prepared to raise interest rates again if necessary to keep inflation in check.
But for now, the rate will remain at 4.5 percent.
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The BoC’s next interest rate decision is scheduled to take place April 12.
“We’re trying to balance the risks of over- and under-tightening,” Macklem said.
“We’ve raised rates very rapidly from a quarter of a percent to 4.5 percent, (and) we know there are lags in the effects of monetary policy.
“We’re certainly starting to see the effects but we know there’s more to come.… If those upside risks don’t materialize (or) … if inflation expectations don’t come down, we are certainly prepared to raise interest rates further.”
Since early 2022, the Bank of Canada has increased its key lending rate eight consecutive times, pushing commercial prime lending rates to their highest levels in more than a decade.
For some consumers who borrowed money at variable lending rates, the financial impacts of recent rate hikes have increased debt servicing costs significantly.
The central bank is hoping that higher lending rates will slow the Canadian economy and put a cap on inflation rates, which have been running well above the bank’s target inflation rate of two percent.
In its March 8 announcement, the central bank said global economic growth continues to slow, and inflation, while still too high, is beginning to come down.
In Canada, economic growth was flat in the fourth quarter of 2022, and the core inflation rate slowed to 5.9 percent in January 2023, the bank said.
Wages continue to grow at four to five percent, while productivity has declined in recent quarters, it added.
“Overall, the latest data remains in line with the bank’s expectation that CPI inflation will come down to around three percent in the middle of this year,” the BoC said.
“(The bank) will continue to assess economic developments and the impact of past interest rate increases, and is prepared to increase the policy rate further if needed to return inflation to the two percent target.”
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