Bank of Canada continues to hold interest rate at 5%

The Bank of Canada will hold key interest rate at 5 per cent.

This is the first interest rate announcement of the year and marks the fourth time in a row that the central bank has decided to hold its key rate steady.

Deposit rates sit at 5 per cent and bank rates are currently set at 5.25 per cent.

The bank said it is continuing its policy of quantitative tightening. “Global economic growth continues to slow, with inflation easing gradually across most economies,” it said in a press release.

“While growth in the United States has been stronger than expected, it is anticipated to slow in 2024, with weakening consumer spending and business investment.”

The bank’s governor, Tiff Macklem, said that the current monetary policy is working to relieve price pressures and “that we need to stay the course.”

“Inflation is coming down as higher interest rates restrain demand in the economy, but inflation is still too high and underlying inflation pressures persist,” he said, adding that the higher interest rates need more time to do their work.

READ MORE: Bank of Canada holds key interest rate steady at 5%

However, Macklem said the governing council at the bank is shifting its focus. “Policy is shifting, from whether our policy rate is restrictive enough to restore price stability, to how long it needs to stay at the current level.”

“But tightness in some parts of the economy is continuing to hold inflation up,” he said.

The bank has hiked interest rates 10 times since 2022, bringing it from 0.25 per cent to its current five per cent in a bid to bring inflation under control.

The belief is that by making it more expensive to borrow money, consumers and businesses will spend less, which would drive prices down and slow the economy.

It holds particular influence over variable-rate loans and mortgages.

According to Royal LePage broker Mike Heddle, “as interest rates rose, that certainly has an impact on purchasing power, or carrying cost. when you raise the cost of borrowing, that’s going to have an impact on affordability.”

The most prominent offender remains to be housing, according to the governor.

He said shelter services continue to see high inflation, as much as seven percent in some cases, because of rising interest mortgage costs, higher rents and other housing costs.

He said that future declines in inflations are likely to be gradual and uneven. Macklem suggests that the path back to two per cent inflation will be slow, with risks along the way.

The next overnight target rate announcement is scheduled for March 6.

READ MORE: Bank of Canada says key interest rate remains 5% amid weakening economy