No change on interest rate as Bank of Canada sticks to 5%

The Bank of Canada has announced its key overnight interest rate will remain at five per cent, keeping its benchmark the same for the fourth time in a row.

Today’s announcement was predicted by many economists. The central bank last raised interest rates in July 2023.

At a press conference on Wednesday morning, the central bank’s governor, Tiff Macklem, said discussions at the Bank of Canada are now shifting from how high to how long.

Instead of looking primarily at whether the bank’s policy-setting interest rate is high enough, the bank is now considering how long its “current restrictive stance” of a higher interest rate needs to be in place.

The predictions of most economists came true on Wednesday as the Bank of Canada kept its trendsetting overnight interest rate at five per cent. (Adrian Wyld/The Canadian Press)

Inflation ‘still too high’: Macklem

Despite that potential shift in message, the bank is not saying interest rates will be falling soon, given continued concern about inflation.

In a prepared speech, Macklem pointed out that inflation has been falling over the past few months as increased interest rates driven by the Bank of Canada have helped slow the economy. But “inflation is still too high,” he said, pointing out that there are still inflationary pressures.

While Macklem said the bank has not ruled out further rate increases if inflation rises, he also said if the economy “evolves broadly in line” with their current projections, he said he does not expect an interest rate hike to be discussed.

“I expect future discussions will be about how long we maintain the policy rate at five per cent,” he said.  

The inflation rate in Canada declined for much of the last year, but moved upward in December. The Bank of Canada’s forecasts expect inflation to reach its targets of around two per cent by 2025.

Economists from both CIBC and the Bank of Montreal reacted to today’s announcement by predicting a cut to the interest rate in June 2024, with BMO saying “rate hikes over the past two years are doing their job.”

The central bank’s interest rate influences the cost of debt for Canadians taking out variable-rate loans and mortgages, and can also affect the interest rates on some savings accounts.

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