The Bank of Canada has decided to maintain its main interest rate at 5%, as officials debate the length of time it should remain restrictive to combat high inflation. Inflation is projected to stay close to 3% in the first half of 2024. Economists pr...
Troy D. Hanson
January 24, 2024
The Bank of Canada announced on Wednesday that it will be keeping its main interest rate unchanged at 5%. This decision comes as senior officials of the central bank contemplate the duration of maintaining this current rate in order to combat persistently high inflation.
Bank of Canada Governor, Tiff Macklem, stated that while the possibility of future policy rate increases has not been ruled out, the recent discussions among senior officials have shifted from the level of restrictiveness of monetary policy to the length of time it should remain restrictive. Macklem also highlighted the weakness in consumer and business indicators as a key consideration.
In its rationale for the decision, the Bank of Canada projected that inflation would remain close to 3% throughout the first half of 2024, gradually slowing down to reach 2% by 2025. The central bank's target is to achieve and maintain 2% inflation. Additionally, the central bank emphasized that measures of core inflation, which exclude volatile items like food and energy, have not shown sustained declines.
Macklem expressed concern over the persistence of underlying inflation and emphasized the importance of continued easing of inflationary pressures. The latest data indicates an increase in inflation in Canada, with a rise from 3.1% to 3.4% in December. Core inflation also saw an acceleration to 3.65%, based on the Bank's preferred gauges.
This marks the first policy decision of 2024 and represents the fourth consecutive announcement in which the Bank of Canada has maintained its target for the overnight rate at 5%. Economists surveyed by The Wall Street Journal predicted no change in the policy rate, with expectations of rate cuts before the end of June.