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

 In a recent announcement, the Bank of Canada has decided to maintain its key overnight interest rate at five percent, marking the fourth consecutive occasion where the benchmark remains unchanged. This decision, widely anticipated by economists, follows the central bank's last interest rate hike in July 2023. At a press conference, Tiff Macklem, the governor of the Bank of Canada, emphasized a shift in discussions from determining the height of the policy-setting interest rate to evaluating the duration of the current higher interest rate, indicating a potential change in the central bank's approach.

Despite considerations about the length of maintaining a "current restrictive stance," the Bank of Canada remains cautious about lowering interest rates due to persistent concerns about inflation. Governor Macklem acknowledged that inflation has moderated in recent months, partly influenced by the bank's interest rate increases, but emphasized that "inflation is still too high." He deemed it "premature" to discuss interest rate cuts, indicating a continued commitment to monitor inflationary pressures closely.

Macklem suggested that future deliberations would likely focus on how long the policy rate would be held at five percent rather than contemplating additional rate hikes. The central bank's forecasts anticipate inflation to reach its target of around two percent by 2025, even as some measures suggest a slowdown in economic growth towards the end of the previous year.

Economists from both CIBC and the Bank of Montreal responded to the announcement by predicting a potential interest rate cut in June 2024. They noted that rate hikes over the past two years have achieved their intended impact. Mortgage rates, influenced by the central bank's decisions, are a crucial factor in this context. Many Canadians who secured mortgages at historically low rates may face higher costs upon renewal or refinancing, potentially impacting their spending capacity and contributing to an economic slowdown.

Jeremy Kronick, director of the Centre on Financial and Monetary Policy at the C.D. Howe Institute, emphasized the need for the Bank of Canada to tread carefully, considering the potential impact on Canadians facing increased mortgage costs. While predicting a "neutral" interest rate around three percent, Kronick highlighted uncertainties, such as geopolitical tensions affecting international shipping costs, that could influence the central bank's ability to achieve this rate. In conclusion, Canadians are advised not to expect rock-bottom interest rates in the coming months, with predictions suggesting rates will remain higher than pre-pandemic levels.

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 Source: CBC News