The Bank of Canada is holding key interest rates at five percent, but does not rule out a hike in the near future as inflationary pressures remain elevated.
The central bank was expected to keep the key rate unchanged as economic data suggests that higher interest rates are cooling the economy as consumers and businesses cut back on spending. Inflation rebounded in September, reaching 3.8 percent on an annual basis, according to Statistics Canada. However, the central bank is concerned that progress towards price stability is lagging and that inflationary risks are on the rise, and therefore is poised to hike the policy rate again if necessary.
The Bank of Canada’s quarterly monetary policy update on Wednesday included new economic projections that point to slower economic growth in the short term. The central bank’s forecast for real GDP growth in 2023 is 1.2 percent, down from its previous estimate of 1.8 percent. Growth is projected to slow to 0.9 percent in 2024, before rebounding to around 2.5 percent in 2025.
The central bank expects inflation to remain close to two per cent in the medium term, peaking at around 3.5 percent by mid-2024. The update also outlined some risks to its projections, including a potential escalation of the Israel-Hamas war. Oil prices are currently higher than expected, and the central bank warns that a wider regional conflict could potentially disrupt global oil supply.