Canada’s central bank on Wednesday held its key lending rate at five percent, saying it remains concerned about inflation even though prices recently fell to within its target range.
The Bank of Canada’s governing council “is still concerned about risks to the outlook for inflation, particularly the persistence in underlying inflation” and “wants to see further and sustained easing in core inflation,” it said in a statement.
Inflation fell in January for a fifth consecutive month to 2.9 percent, in line with the bank’s 1.0 to 3.0 percent target.
But the bank has signalled it prefers to remain cautious and not lower rates too soon and then have to reverse course. It said Wednesday that it continues to expect inflation to remain close to three percent during the first half of this year before gradually easing.
Bank of Canada governor Tiff Macklem told a news conference that rates are currently “restrictive enough” to cool the economy.
But “It’s still too early to consider lowering the policy interest rate,” he said, warning that “future progress on inflation is expected to be gradual and uneven” and “upside risks” remain.
“Inflation will not reach two percent by the end of the year,” he also predicted.
Most economists expect the central bank to start gradually lowering interest rates in June after aggressively hiking them from a record low of 0.25 percent in a bid to tame soaring inflation.
Desjardins analyst Royce Mendes said in a research note that he expects “a significant change in tone” from the central bank at its next rate announcement scheduled for April 10 before moving to cut rates in June.
The Bank of Canada noted that the economy grew 1.0 percent in the fourth quarter — more than expected, but still below its potential.
Growth was boosted by a strong increase in exports. Employment continues to rise more slowly than the Canadian population which has been fueled by strong immigration. And wage pressures appear to be easing, it said.
