The Bank of Canada (BoC) today held the interest rate at 5 per cent giving no indication of when Canadians might get a reprieve. In a statement announcing the policy, the Governing Council said that it is still concerned about the outlook to inflation and wants to see some easing.
According to the BoC’s policy statement, the Canadian economy grew in the fourth quarter by more than expected, although the pace remained weak and below potential. Real GDP expanded by 1% after contracting 0.5% in the third quarter. Consumption was up a modest 1%, and final domestic demand contracted with a large decline in business investment. A strong increase in exports boosted growth. Employment continues to grow more slowly than the population, and there are now some signs that wage pressures may be easing. Overall, the data point to an economy in modest excess supply.
The national bank said that the CPI inflation eased to 2.9% in January, as goods price inflation moderated further. Shelter price inflation remains elevated and is the biggest contributor to inflation. Underlying inflationary pressures persist: year-over-year and three-month measures of core inflation are in the 3% to 3.5% range, and the share of CPI components growing above 3% declined but is still above the historical average. The Bank continues to expect inflation to remain close to 3% during the first half of this year before gradually easing.
Governing Council says that it decided to hold the policy rate at 5% and to continue to normalize the Bank’s balance sheet. The Council expressed concerned about risks to the outlook for inflation, particularly the persistence in underlying inflation. It wants to see further and sustained easing in core inflation and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.
The BoC says it remains resolute in its commitment to restoring price stability for Canadians. The next interest rate announcement is on April 10.
