Bank of Canada Holds Key Interest Rate At 5%, Hints At Rate Cut in June

The Bank of Canada has maintained its benchmark interest rate at five percent for the sixth consecutive occasion since July, indicating its intention to await sustained indications of decelerating inflation before contemplating rate reductions.

The central bank underscored that while inflation remains elevated, it acknowledged a downward trajectory in core inflation metrics, which exclude volatile components such as food and energy, in recent months.

Bank of Canada governor Tiff Macklem, addressing reporters in a post-announcement press briefing, acknowledged the predominant inquiry among Canadians regarding the timing of a potential policy rate reduction. He stated, “The short answer is we are observing the necessary signals, albeit we require a prolonged observation to ascertain confidence in sustained progress towards price stability. The recent downturn in core inflation warrants scrutiny to confirm its durability.”

Macklem hinted at the possibility of a rate decrease in June, asserting it to be “within the realm of possibilities.”

Despite a cooling inflation rate of 2.8 percent in February, with deceleration observed across various sectors including goods, food, clothing, and services, persistently high expenses related to rent and mortgage interests contribute to an elevated overall inflation rate.

The bank anticipates a convergence of inflation towards its targeted two percent level by the conclusion of this year, with further expectations of robust GDP growth in 2025, driven by population expansion and amplified household expenditures.

Macklem emphasized the importance of sustained evidence supporting the recent moderation in underlying inflation as a factor in determining the duration of maintaining the policy rate at its present level.

The bank initiated its interest rate hike campaign in March 2022, marking the inception of an assertive strategy aimed at mitigating inflation, resulting in ten rate hikes in less than two years.