The Bank of Canada decided today Wednesday, March 8, 2923 to keep its trend-setting interest rate right where it is, at 4.5 per cent.
It's the first time in more than a year that the central bank has decided not to raise its interest rate.
Although it will come as encouraging news to borrowers, the move was widely expected, as the bank signalled at its previous policy meeting and in statements since then that it was leaning toward keeping its rate steady.
Global economic developments have evolved broadly in line with the outlook in the January Monetary Policy Report (MPR). Global growth continues to slow, and inflation, while still too high, is coming down due primarily to lower energy prices.
Financial conditions have tightened since January, and the US dollar has strengthened. In Canada, economic growth came in flat in the fourth quarter of 2022, lower than the Bank expected. Restrictive monetary policy continues to weigh on household spending, and business investment has weakened alongside slowing domestic and foreign demand.
The labour market remains very tight. Employment growth has been surprisingly strong, the unemployment rate remains near historic lows, and job vacancies are elevated.
Inflation eased to 5.9% in January, reflecting lower price increases for energy, durable goods and some services. Price increases for food and shelter remain high, causing continued hardship for Canadians. With weak economic growth for the next couple of quarters, pressures in product and labour markets are expected to ease. This should moderate wage growth and also increase competitive pressures, making it more difficult for businesses to pass on higher costs to consumers.
Overall, the latest data remains in line with the Bank’s expectation that CPI inflation will come down to around 3% in the middle of this year. Year-over-year measures of core inflation ticked down to about 5%, and 3-month measures are around 3½%. Both will need to come down further, as will short-term inflation expectations, to return inflation to the 2% target.
The Bank remains resolute in its commitment to restoring price stability for Canadians.
That's a sign that the bank's campaign to wrestle inflation into submission is working, but the bank made it clear in its statement that it is prepared to raise rates even higher then they are, should circumstances change.
(Source: Bank of Canada & CBC News, March 8, 2023)