The Bank of Canada has kept its key interest rate unchanged at 5% for the sixth time in a row since July, saying it will monitor signs of sustained slowing inflation before cutting rates.
The central bank said inflation remained too high, but noted that its core inflation measures, which exclude volatile sectors such as food and energy, had trended downward in recent months.
“I think what most Canadians want to know is when are we going to lower the policy rate? What do we need to see to be sure it’s time to lower it?” Bank of Canada Governor Tiff Macklem said this at a press conference after the announcement.
“Simply put, we are seeing what we need to see, but we need to look a little longer to be confident that progress towards price stability is sustained. This is very recent. Rest assured this is not just a temporary dip.”
Governor Macklem said a rate cut in June was “within the realm of possibility.”
The Bank of Canada kept its key policy rate on hold at 5% again on Wednesday. “We’re seeing what we need to see,” Gov. Tiff Macklem said. “But we need to wait a little longer to be confident that progress toward price stability is sustained.” Macklem said in response to a reporter that a rate cut in June was “within the realm of possibility.” He said there is.
Inflation fell to 2.8% in February, but price growth across goods, food, clothing and services has slowed, and high rent and mortgage rates continue to push up overall inflation.
The central bank expects inflation to approach its 2% target this year and reach it in 2025. The central bank also expects strong GDP growth this year and in 2025, driven by population growth and higher household spending.
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“As we consider how long to maintain interest rates at current levels, we are looking for evidence that the recent further easing in underlying inflation will be sustained,” Macklem said.
The Bank of Canada first raised interest rates in March 2022, the beginning of an aggressive campaign to rein in inflation that resulted in 10 rate hikes in less than two years.
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“The Bank of Canada seems to be telling Canadians that a rate cut is on the horizon and it may not be long before a rate cut becomes a reality,” said Royce Mendes, managing director and economist at Desjardins Capital Markets. ” he said.
He said the longer banks keep interest rates at 5%, the greater the risk of pushing the economy into an unnecessary recession.
Mendez added that he believes the central bank will begin lowering interest rates at its next meeting on June 5, and will continue to do so in small increments at subsequent meetings.
Bank of Canada Governor Tiff Macklem said core inflation, which removes the volatile part of the consumer price index, allows the Bank of Canada to see where trends are.
“All that was needed for the rate cut to become a reality was business as usual, which is really great news,” Mendez said.
Economists expect the Bank of Canada to lead the U.S. Federal Reserve in cutting interest rates, given the divergence in economic data between the two countries.
After rising by a similar amount in February, U.S. inflation rose by a better-than-expected 0.4% in March, further raising expectations for Fed rate cuts in the second half of the year.
Macklem said he doesn’t think U.S. inflation will have a major impact on Canada.
