The Bank of Canada did not raise the interest rate
But said the raise is possible in the future.
On Wednesday, September 6, the Bank of Canada was scheduled to make a scheduled decision on the key rate. And the Central Bank decided to keep the key interest rate at its current level of 5%, noting that the country's economic growth is weakening. The Bank also noted that it may raise borrowing costs again if inflationary pressures persist.
The Central Bank of Canada raised rates by 0.25 point in June and July. The Central Bank explained its decision by trying to curb inflation, which has been above the 2% target for 27 months.
Canada's GDP unexpectedly contracted at an annualized rate of 0.2% in the second quarter of 2023. This could indicate that the economy is entering a recession. Inflation, meanwhile, accelerated to 3.3% in July, while core inflation remained at around 3.5%.
"With recent evidence that excess demand in the economy is easing, and given the lagged effects of monetary policy, Governing Council decided to hold the policy interest rate at 5%," the Bank of Canada said in a statement.
Also, the Central Bank said that they are ready to raise rates further if inflationary pressures persist. However, analysts believe that this statement of the Bank should not cause concerns. It is unlikely that the increase in key rates will continue, at least in the near future.
"We don't expect to see a quick turnaround in economic activities with growth expected to remain on the slow side in the third quarter. We expect they will also remain on hold in the October and December meetings," Andrew Kelvin, chief Canada strategist at TD Securities, told Reuters.
Bank of Canada officials said that due to recent increases in gasoline prices, which were higher than assumed in the latest July economic forecasts, inflation will rise in the near term before falling back into decline.
On the other hand, interest rates, which are the highest in 22 years, are curbing spending by "a wider range of borrowers" and the economy has "entered a period of weaker growth, which is needed to relieve price pressures."
Last year, inflation in Canada reached a 40-year high of 8.1%. In an attempt to bring it back to the target level, the Bank of Canada raised the key rate ten times between March 2022 and July 2023.
"The Bank of Canada's decision to maintain its overnight interest rate is welcome relief for Canadians," commented Finance Minister Chrystia Freeland.
High inflation and constant increases in key interest rates have been among the major issues for which Canada's current government led by Prime Minister Justin Trudeau has been criticized. Conservative Party leader Pierre Poilievre accused Trudeau of exacerbating inflation through government spending and raising rates during the housing crisis.
