BoC holds key interest rate at 5% as expected

The Bank of Canada (BoC) opted to maintain its key interest rate at 5% on Wednesday, for the third consecutive decision, as widely expected. According to the BoC the latest data “suggest the economy is no longer in excess demand”. The tone of the statement hints at no rate hikes ahead.

The BoC said it remains concerned about inflation risks but refrains from explicitly mentioning that the risks are increasing. They point out that higher rates are restraining spending and the labor market continues to ease.

There won’t be a post-meeting press conference. The Monetary Policy Report will be delivered at the next Bank of Canada (BoC) meeting on January 24, 2024. On Thursday, Toni Gravelle, Deputy Governor will speak at the Windsor-Essex Regional Chamber of Commerce, the first comments following the December BoC meeting.

BoC policy statement highlights:

The Bank of Canada today held its target for the overnight rate at 5%, with the Bank Rate at 5¼% and the deposit rate at 5%. The Bank is continuing its policy of quantitative tightening.

Higher interest rates are clearly restraining spending: consumption growth in the last two quarters was close to zero, and business investment has been volatile but essentially flat over the past year.

The labour market continues to ease: job creation has been slower than labour force growth, job vacancies have declined further, and the unemployment rate has risen modestly. Even so, wages are still rising by 4-5%.

Overall, these data and indicators for the fourth quarter suggest the economy is no longer in excess demand.

The slowdown in the economy is reducing inflationary pressures in a broadening range of goods and services prices.

With further signs that monetary policy is moderating spending and relieving price pressures, Governing Council decided to hold the policy rate at 5% and to continue to normalize the Bank’s balance sheet.