OTTAWA - On Wednesday, the Bank of Canada maintained its key interest rate at five percent and indicated that discussions have begun regarding the possibility of rate cuts.
Governor Tiff Macklem mentioned in his prepared remarks, 'With overall demand in the economy no longer outpacing supply, the governing council's focus is shifting from the question of whether our policy rate is restrictive enough to restore price stability, to how long it should remain at the current level.'
While it was expected that the Bank of Canada would maintain its key rate, the central bank's decision comes against the backdrop of weaker economic growth and slowing inflation, allowing them to keep the policy rate steady while closely monitoring the economy's response to higher rates. Nevertheless, economists have been eagerly anticipating any indication from the bank regarding the possibility of rate cuts.
Despite this change in tone, Governor Macklem reiterated that the central bank remains open to the idea of further rate hikes should inflation not cooperate, stating, 'This does not imply that we have ruled out the possibility of additional policy rate increases. If unforeseen developments drive inflation higher, we may still need to raise rates.'
He added, 'However, if the economy evolves largely as projected in our latest report, I anticipate that future discussions will revolve around how long we can maintain the policy rate at five percent.'
The Bank of Canada's press release on the rate decision also emphasized that the governing council remains concerned about stubbornly high inflation.
Canada's annual inflation rate edged up to 3.4 percent in December, with underlying price pressures remaining elevated.
Before Wednesday's decision, many forecasters were anticipating that weaknesses in the Canadian economy might prompt the central bank to consider cutting interest rates as early as this spring.
The Bank of Canada's latest forecasts, released today, indicate that the economy is likely to remain weak in the near term before rebounding in the second half of the year, with inflation expected to return to two percent by 2025.
These forecasts largely align with those made in October. As we approach the next rate announcement on March 6th, 2024, we remain optimistic about the bank's efforts to navigate the economic landscape and steer towards a prosperous future.
