The central bank of Canada announced Wednesday that it would maintain its key rate at 5%, citing the economic slowdown and a general easing of prices.
However, she suggested that further increases were possible as she remains concerned about the inflation outlook. The key rate has been its highest level in 22 years since July.
After reaching a peak of 8.1% in June 2022, Canadian inflation continued to fall in October to stand at 3.1% year-on-year.
The institution believes that its current policy is clearly curbing spending, but also that labor market conditions continue to ease.
Employment growth has been slower than that of the labor force and the number of job vacancies has fallen further.
Overall, these data suggest that the economy is no longer in a situation of excess demand, underlines the Bank of Canada, which also notes a general slowdown in global economic growth.
Canadian gross domestic product (GDP) fell 1.1% year-on-year in the third quarter, following growth of 1.4% in the second.
The bank also notes that increases in housing costs have increased, reflecting faster growth in rents and other housing costs.
In recent months, Justin Trudeau’s liberal government has announced new measures in favor of Canadian households, in particular to combat the housing crisis.
The central bank has maintained its key rate at 5% for several months after around ten increases in 18 months in an attempt to bring Canadian inflation back to around 2%.
The Governing Council wants to see core inflation continue to fall in a sustainable manner, concludes the institution.
Maintaining its rate was the central bank’s only option, believes James Orlando, economist at TD Bank.
But with inflation still above 3%, we understand why the Bank of Canada is not ready to declare victory, he adds.
We will have to wait for the January announcement for the central bank’s communication to take a more optimistic turn which could include a slightly faster return to the 2% inflation target, notes Royce Mendes, financial analyst. Desjardins Bank.
The next key rate announcement is scheduled for January 24, 2024.