by Steve Scherer and David Ljunggren
OTTAWA (Reuters) – The Bank of Canada (BoC) kept its main interest rate unchanged at 5% on Wednesday, citing a period of weaker economic growth, but signaled it could raise borrowing costs again. if inflationary pressures persist.
The BoC had raised its key rate by 25 basis points in June and July to curb inflation, which remains well above its target of 2%.
Canada’s gross domestic product (GDP) unexpectedly contracted an annualized 0.2% in the second quarter but price inflation accelerated to 3.3% in July.
“Given recent signs that excess demand is waning in the economy, and given that the effects of monetary policy are being felt with a lag, Governing Council has decided to hold the policy rate at 5% and continue to normalize the Bank’s balance sheet,” the BoC said in a statement.
The central bank has said it is ready to raise rates again if inflationary pressures persist, but analysts say that is unlikely to materialize in the near term.
“We don’t expect a quick recovery in economic activity, with growth expected to remain weak in the third quarter,” said Andrew Kelvin at TD Securities. “We expect them (the BoC, editor’s note) to maintain their position during the October and December meetings”.
(Report Steve Scherer and David Ljunggren, with the contribution of Fergal Smith, Ismail Shakil, Divya Rajagopal and Nivedita Balu, Blandine Hénault for the French version, edited by Nicolas Delame)
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