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Bank of Canada holds key interest rate, but what comes next?
March 8, 2023 | Posted by: Angela Robinson
The Bank of Canada decided to hold its key interest rate steady Wednesday but made clear it’s still prepared to raise rates further depending on how inflation and the economy progress.
The central bank’s policy rate remains at 4.5 per cent as of Wednesday.
The hold, which was widely expected by economists, comes after eight consecutive increases saw the key rate rise by 425 basis points since March 2 of last year. The central bank undertook one of the fastest rate tightening cycles in its history in hopes of tamping down rampant inflation.
The Bank of Canada said in a statement accompanying the rate decision on Wednesday that the latest economic data is in line with its forecast calling for inflation to return to around three per cent by mid-2023.
Canada’s gross domestic product (GDP) data came in weaker than expected at the end of 2022, which was largely good news for the central bank. The Bank said in its statement that with weak economic growth expected in the quarters ahead, there should be less demand in the economy driving up prices.
Higher interest rates are working to discourage household spending, slow the economy and cool inflationary pressures, in the Bank’s view.
But the central bank added there are risks to the inflation outlook that could drive price pressures higher again and warrant another interest rate increase down the line.
The country’s “very tight” labour market and “surprisingly strong” employment growth are a significant source of uncertainty in its inflation forecast, policymakers wrote.
In addition, global factors such as Russia’s war in Ukraine and rebounding economic growth in China are risks that could drive inflation higher still.
The Bank of Canada reiterated in its statement that it “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 per cent) target.”
Avery Shenfeld, chief economist at CIBC World Markets, said in a note to clients Wednesday morning that the Bank of Canada had to keep its wait-and-see approach because it doesn’t have enough data yet to say whether it needs to raise rates again or if it can firmly declare a peak for the current tightening cycle.
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Full article: https://globalnews.ca/news/9535701/bank-of-canada-interest-rate-mar-2023/#:~:text=The%20central%20bank's%20policy%20rate,March%202%20of%20last%20year
