The Bank of Canada on Wednesday held its key lending rate at 5 per cent, saying it is looking for signs that falling inflation will stick before it begins to cut rates.
“While inflation is still too high and risks remain, CPI (Consumer Price Index) and core inflation have eased further in recent months,” the central bank said, adding that its governing council “will be looking for evidence that this downward momentum is sustained.”
The rate hold — the bank’s sixth in a row after aggressive hikes from a record low in recent years to try to throttle soaring prices — was widely expected as analysts eye June for a possible first cut.
“The myriad of releases from the Bank of Canada paint a picture of policymakers who are nearly ready to begin a rate cutting cycle,” despite recent stronger-than-expected gross domestic product (GDP) data, commented Desjardins analyst Royce Mendes in a research note.
“The only fly in the ointment today comes from outside Canada, with the hotter-than-anticipated US inflation numbers creating some concern that some price pressures could spill over the border,” he added.
US consumer inflation accelerated 0.3 percentage points in March to 3.5 per cent.
The Bank of Canada on Wednesday revised upward its global growth forecast and noted that while inflation has continued to slow across most advanced economies, “progress will likely be bumpy.”
In Canada, it said to expect inflation to move below 2.5 per cent in the second half of this year and reach its two per cent target in 2025. Inflation ticked lower to 2.8 per cent in February.
It noted that labor market conditions have continued to ease and that there were recent signs that wage pressures were moderating.
It predicted the Canadian economy would pick up this year, growing 1.5 per cent (revised up from 0.8 per cent), due to population increases and a recovery in household spending. Business investments are likely to recover more gradually while exports will see solid growth through 2024, it said.
The bank slightly downgraded, however, its growth projections for the Canadian economy thereafter, to 2.2 per cent in 2025.
