Announcement rounds out a dramatic year for interest rates
The Bank of Canada has left its policy interest rate unchanged in its last scheduled decision of 2023, keeping rates where they are for a third consecutive announcement amidst evidence that previous hikes are proving effective in cooling the economy.
The central bank kept its benchmark rate, which leads variable mortgage rates in Canada, at its existing level of 5.0% in Wednesday’s decision, meaning the current pause on rate increases is the longest since the Bank began hiking rates in March 2022.
In its statement accompanying Wednesday’s decision, the central bank maintained a hawkish tone, indicating its governing council was “still concerned” about inflation risks and was still prepared to raise the policy rate again if required.
The decision came as no surprise to markets, which had indicated virtually no chance of an increase following surprisingly dovish remarks by Bank governor Tiff Macklem in recent weeks about the possibility that rates were already high enough to bring inflation down towards the 2% target.
Economic trends are playing out as hoped for by the Bank, with inflation ticking down again last month and the unemployment rate continuing to creep up as GDP (gross domestic product) growth contracts.
The Bank introduced 10 rate increases between March last year and this July, spiking that policy rate by 475 basis points to a 22-year high in a bid to bring spiralling inflation under control.
Canada’s annual inflation rate hit its highest level for 39 years in June 2022, but has fallen to 3.1% at latest reading with signs that core price pressures are beginning to ease.
The recent economic slowdown and series of rate pauses by the central bank have sparked some speculation about when interest rates are likely to start falling. Economists generally believe the Bank will start cutting rates at some point in 2024, although an exact timeframe remains unclear.
