Daily Times

Canada’s central bank on Wednesday held its key lending rate at five percent, saying a series of rate hikes was having the desired effect of taming inflation.

“There is growing evidence that past interest rate increases are dampening economic activity and relieving price pressures,” the Bank of Canada said in a statement. But it also warned that it was prepared to raise rates in the future, after standing pat a second month in a row, if inflation soars again.

TD analyst James Orlando echoed other economists in saying the central bank “didn’t throw any curveballs today,” but “at the same time, it didn’t declare victory” in its inflation fight. Most experts had predicted the bank was done raising rates over the near term, with BMO analyst Douglas Porter saying in a research note he expects rates “to remain on hold deep into 2024.”

The Bank of Canada increased rates aggressively over the past year in a bid to bring inflation down to around two percent, from a peak of 8.1 percent in June 2022.

Average consumer prices dipped to yield an inflation rate of 3.3 percent in June after steadily trending downward, but then saw some volatility before settling at 3.8 percent in September. The bank said it continued to expect inflation would fall gradually to two percent in 2025, but remain higher in the near term.

The bank noted that oil prices were higher than was assumed in July and the wars in Israel and Gaza created “a new source of geopolitical uncertainty.”

Its governing council, the bank said, “is concerned that progress towards price stability is slow and inflationary risks have increased, and is prepared to raise the policy rate further if needed.”

The Bank of Canada’s global growth forecast remained unchanged overall, but it noted the US economy has been stronger than expected while economic activity in China was weaker, and growth in Europe has slowed further.