The Central Bank kept the key rate unchanged
But it is too early to talk about stabilization of the economy.
The Bank of Canada left its benchmark interest rate unchanged at 5.0% on Wednesday, October 25 amid signs of a cooling economy and weakening inflation.
However, the central bank also warned in an official statement that "progress towards price stability is slow and inflationary risks have increased" and that it is prepared to hike further if necessary.
Dynamics
This is the second consecutive time the central bank has kept its key rate unchanged — while it has risen 4.75 points since March.
"We’ve made a lot of progress, but we’re not there yet. We need to stay the course," said Bank of Canada Governor Tiff Macklem.
Eight times a year, the central bank meets to set the benchmark rate, which affects the interest that retail banks pay on short-term loans. All things being equal, the bank raises the rate when it wants to slow an overheated economy and lowers it when it wants to stimulate borrowing, spending and investment.
After cutting rates in the early days of the pandemic to support the economy, the Bank of Canada began aggressively raising them in early 2022, to curb inflation, which had reached its highest level in 40 years. This October, Statistics Canada released a report that the country's inflation rate had finally slowed.
Forecasts for the economy from the central bank
The Bank of Canada also lowered its expectations for next year. Real GDP is now expected to grow by 0.9% — the July forecast promised a 1.2% figure. At that pace, the economy is expected to grow by 2.5% by 2025.
Experts estimate the probability of the key rate increase at the next meeting of the bank, which will be held in December, at 5%. At the same time, some data suggest that the rate next summer will already be lower than today.
The Canadian dollar also fell about a quarter of a cent on the news. This is another sign that investors believe further rate hikes are unlikely.
